Even with good insurance, medical expenses can still cost quite a bit, but you might be able to claim a tax deduction to write them off. Your qualifying medical expenses get reported on Schedule A, the form used to report your itemized deductions. However, in general, you're out of luck when it comes to deducting non-prescription drugs on your taxes.
The only non-prescription drug you are allowed to include when figuring your medical expenses deduction is insulin. No other non-prescription drugs qualify, even if they are recommended by a doctor.
The medical and dental expenses deduction, which includes insulin, only allows you to write off your costs that exceed a specified portion of your adjusted gross income. In 2012, the threshold is 7.5 percent, but will increase to 10 percent in 2013. For example, say your insulin and other qualifying costs total $10,000. If your adjusted gross income is $70,000 in 2013, you will only be able to deduct $3,000 for all your expenses.
Other Allowed Expenses
Chances are your insulin costs aren't going to get you above the adjusted gross income threshold alone. However, if you have other costs, the total might be over the threshold. Other deductible expenses include costs you pay out-of-pocket for checkups, testing, preventing and curing diseases. You can also include similar costs paid for your spouse or your dependents. Costs covered or reimbursed by insurance don't count.
When you file your taxes, report your total medical expenses on line 1 of Schedule A. Copy the amount of your adjusted gross income from line 38 of Form 1040 onto line 2, then multiply it by the threshold and report the result on line 3. Finally, subtract the threshold from your total expenses and report your deduction on line 4. You do not need to mail in any receipts with your tax return to prove your medical expenses deduction, but you should keep them just in case your return gets audited.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."