Discussion:Medical expense deduction better than SE health ins. deduction?

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Discussion Forum Index --> Advanced Tax Questions --> Medical expense deduction better than SE health ins. deduction?


Discussion Forum Index --> Tax Questions --> Medical expense deduction better than SE health ins. deduction?

Joanmcq (talk|edits) said:

19 May 2008
Client had very bad year business wise and took an early withdrawal from his IRA to pay living expenses. All of his tax is the penalty on early withdrawal and SE tax. He is itemizing and I can exclude some of the early IRA withdrawal to the extent of medical expenses over 7.5% of AGI. Am I required to deduct his medical insurance on page one of the 1040, or can I take it all as medical expenses on the Sch A? The effect of the increase in AGI on the medical expenses is made up for the greater amount of distribution that can be excluded from the penalty.

EZTAX (talk|edits) said:

19 May 2008
It will be interesting to hear others comments on this but I think you can probably do both. The reduciton in the penalty specifically mentions that you do not have to itemize your deductions on schedule A to reduce the penalty. I don't have time to look it up now but doesn't the 5329 instuctions say you can reduce the penalty by the amount of med expenses over 7.5% of your AGI? Does not mention how/if they were otherwise reported.

TheTinCook (talk|edits) said:

19 May 2008
Your client is out of luck. You don't get a choice.

§72(t)(2)(B) exludes from the penalty the amount that would be allowable as a medical expense deduction under §213.

§162(l)(3) prevents any amount that could be deducted as SEHI from being deducted under §213.


Since the client had a very bad year, the earned income and other limitations of §162(l)(2) could prevent any SEHI deduction, letting all of the expenses be taken under §213, thus ameliorating the penalty.

Death&Taxes (talk|edits) said:

19 May 2008
One of those anomalies where you will be looking for some reason the health insurance does not qualify for SEHI!

Joanmcq (talk|edits) said:

19 May 2008
I'm reading the code section, and is it reading that since the SE deduction is allowed then the allowable medical deduction must be reduced? I was taking it to mean that if you take the SE, you cannot duplicate those expenses on Sch A. let me re-read Sec. 123 213 and get back.

Waynecpa (talk|edits) said:

19 May 2008
Could you qualify under 72(t)(2)(D)? Could he be considered unemployed except for the fact he was self employed? i.e. no work

Joanmcq (talk|edits) said:

19 May 2008
I'm not as comfortable with that exception. Damn. I was hoping I found a way to minimize the hit a little. And as for state taxes, the only thing he owes is the penalty for early withdrawal, and the same exemptions from the penalty as for federal also apply for state. so any reduction is actually two-for-one.

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