Updated February 2014
Many seniors have gotten into the habit of just claiming the standard deduction instead of itemizing. That's because seniors typically pay little or no mortgage interest, and they usually don't owe much for state and local income and property taxes either. So the most common itemized deductions often amount to little or nothing.
Plus, folks age 65 and older get larger standard deductions. All that said, claiming the standard deduction may not be the right answer if an older taxpayer has significant medical expenses.
As you may know, medical expenses can only be deducted to the extent they exceed 7.5 percent of adjusted gross income (AGI). In adding up expenses, don't make the common mistake of forgetting to count Medicare insurance premiums. Together with other out-of-pocket costs, Medicare premiums can easily put you over the 7.5 percent-of-AGI threshold and also cause an older taxpayer's total itemized deductions to exceed the standard deduction amount.
Here's how to find out if a tax bill can be reduced by itemizing.
Identify Outlays that Count as Medical Expenses
To figure out if you have enough medical expenses to benefit from itemizing, add up the following.
1. Premiums for Medicare Parts B, C, and D Coverage. Seniors enrolled in Medicare can count premiums for Medicare Part B coverage (for medical costs other than hospital bills), Part C coverage (for Medicare Advantage policies), and Part D coverage (for prescription drugs) as medical expenses:
- For most people, the 2014 Part B premium is $104.90 per month ($1,259 for the year), but it can be up to $335.70 per month for a high-income individual ($4,028 for the year). For 2013, the Part B premium was $99.90 per month per covered person ($1,199 for the year), but for higher-income folks, it was up to $230.80 per month ($2,770 for the year).
- Part C premiums depend on the plan, but they can be several thousand per year for each covered person.
- Part D premiums are often in the $30 to $70 per month range per covered person for 2014 (and 2013).
These Medicare coverage premiums are generally withheld from Social Security benefit payments. If so, you can find the premium amounts for each year on Form SSA-1099 (Social Security Benefit Statement ), which beneficiaries should receive shortly after the end of each year.
2. Premiums for Supplemental Medicare Coverage (Medigap Insurance). Seniors can also count premiums paid for private Medicare supplemental insurance policies (often called Medigap coverage) as medical expenses. The cost depends on the plan, but annual premiums can easily amount to $1,000 to $2,000 per covered person or more.
3. Premiums for Qualified Long-Term Care Coverage. Premiums for qualified long-term care insurance also count as medical expenses, subject to age-based limits. For each covered person, count the lesser of the actual premiums paid for the year or the age-based limit from below.