When it comes to maximizing your tax savings, every dollar counts. For many taxpayers, medical expenses can be a significant cost throughout the year, but there’s a silver lining: medical expenses can be deducted on your tax return if they exceed a certain threshold. However, qualifying for a medical expense deduction can be tricky, especially since only expenses exceeding 7.5% of your adjusted gross income (AGI) are deductible.
If you’re close to reaching that threshold for your 2025 tax return, you might be able to maximize your deduction through a strategy called “bunching” medical expenses. In this post, we’ll explain how this strategy works, what qualifies as an eligible medical expense, and how careful planning can help you boost your medical expense deduction for significant tax savings.
Understanding the Medical Expense Deduction Limit
First, let’s break down how the medical expense deduction works. For the 2025 tax year, you can deduct the amount of medical expenses that exceed 7.5% of your adjusted gross income (AGI). If your AGI is $50,000, for example, you’d need medical expenses greater than $3,750 to start deducting them.
While many people don’t have enough in medical expenses to reach this threshold—unless, of course, they experience a major medical event—there’s a way to potentially push your deductions higher using strategic planning.
What Qualifies as a Medical Expense?
The IRS allows taxpayers to deduct a variety of healthcare-related costs. These include, but are not limited to:
- Doctor visits and hospital care
- Prescription medications and medical supplies
- Dental care, such as cleanings, fillings, and crowns
- Vision care, including eyeglasses and corrective surgery (like LASIK)
- Insurance premiums for health, dental, and long-term care insurance
- Mental health services, including therapy and counseling
- Long-term care expenses, including nursing home care or home health services
For a complete list of qualifying expenses, check out IRS Publication 502: Medical and Dental Expenses.
How “Bunching” Medical Expenses Can Help
One strategy for maximizing your medical expense deduction is called “bunching.” This technique involves timing your medical expenses so that you pay multiple years’ worth of qualifying medical expenses in a single year. By doing this, you may be able to exceed the 7.5% AGI threshold in one year and qualify for a larger deduction, while potentially falling below the threshold in other years.
Example of Bunching Medical Expenses
Let’s say you’re planning to have surgery in 2025 that will involve significant out-of-pocket costs. If, however, your total expenses are still a bit shy of the 7.5% AGI threshold for that year, you might consider bunching additional medical expenses into that year to push you over the limit.
For example:
- If you’re already planning a surgery with out-of-pocket expenses of $2,000, and your AGI is $50,000, your deductible medical expenses would need to exceed $3,750 to qualify. So, you’re short by $1,750.
- To bridge this gap, you could schedule additional elective procedures that you may have been planning to do anyway, such as dental work, LASIK surgery, or even medical supplies you need.
By consolidating these costs into 2025, you could push your total medical expenses over the threshold, making them deductible and reducing your tax liability.
Planning Ahead for 2025
You don’t have to wait until the end of the year to start thinking about bunching. In fact, the best time to plan for this strategy is well in advance. By timing medical procedures and purchases, you can maximize your tax benefit without creating financial strain in any given year.
- Schedule elective surgeries and dental procedures in the same year.
- Make large medical purchases (e.g., glasses, medical devices) before year-end to help reach the threshold.
- Consider prepaying insurance premiums or other allowable medical expenses for the upcoming year, if feasible.
When Bunching Might Not Be an Option
While bunching can work well for some taxpayers, it may not be a viable strategy for everyone. For instance, if you have recurring health conditions that require ongoing treatments or medications, your expenses may be spread out over the year in a way that doesn’t allow for effective bunching.
In this case, you may need to explore other ways of maximizing your medical expense deduction, such as contributing to a Health Savings Account (HSA), or reviewing your insurance coverage to see if it provides any additional savings opportunities.
Keep in Mind: Timing and Documentation Are Key
If you’re planning to bunch your medical expenses in 2025, make sure you keep detailed records of all eligible expenses. It’s crucial to track your medical costs, receipts, and statements so you can substantiate your claims come tax season.
Additionally, remember that the medical expense deduction only applies to itemized deductions, meaning you must forgo the standard deduction if you want to benefit from this strategy. So, it’s important to evaluate whether itemizing deductions will be beneficial for you overall.
Closing Thoughts
By carefully timing and planning your medical expenses, you could potentially increase your deduction and reduce your tax liability when you file your 2025 tax return. While it can take some foresight to fully maximize the benefit, using strategies like bunching your medical expenses can result in significant tax savings.
If you need help navigating the intricacies of medical expense deductions or want to explore other tax-saving strategies, our team is here to help. Contact us today to discuss your options for maximizing deductions and planning for a tax-efficient future.