Deductions for Your Health and Your Wealth

Abortion; acupuncture; birth control pills; chiropractic care; contact lenses, eyeglasses and laser eye surgery; fertility enhancement; lead-based paint removal; stop-smoking programs; vasectomies; and weight-loss programs are all eligible medical deductions.

To that end, now's the time to consider accelerating medical costs into the second half of the year. If you expect to have sizeable eligible deductions but may not reach the 7.5% threshold, you still have six months to make medical and health decisions that could help save some money when it's time to do your 2002 taxes.

When the time comes, there are a few strategies to consider if you think you might be able to deduct your medical expense. If you can defer some income until 2003, for instance, you can lower your AGI and increase your deductible amount.

If you're married, consider filing separately. Most married couples automatically file joint returns, but it often pays to do a little extra math to see if filing separately will help you save more. Filing separately essentially means that you and your spouse file separate returns, reporting only your own income. The tax brackets for those who are married but filing separately are exactly half of the brackets for joint filers. Because each of you will have a lower adjusted gross income, reaching that 7.5% threshold will be easier. One spouse can deduct all of the medical expenses for the other spouse, as well as any dependents.

Though you may switch back to filing jointly the following year, there still could be a few downsides. Some tax credits -- such as the $1,500 Hope credit or the $1,000 Lifetime Learning credit (which can be used to defray higher education expenses), as well as the earned income tax credit (a credit aimed at the working poor) -- cannot be claimed by married couples filing separately; you must file jointly to be eligible.