When you have an extraordinary amount of medical bills that you had to pay for out of pocket in the previous year, you may be able to deduct the amount on your taxes under itemized deductions, up to a certain limit depending on your income level. That's why it's so important to hold onto your receipts. Your medical expenses include dental procedures and insurance premiums that you paid throughout the year.
Keep all of your medical and dental receipts for procedures, doctor visits, medication, tests, and other important examinations. These must be receipts for services that you paid out of your own pocket. If you have health insurance that reimburses you, gather all of your records of payments that the insurance company made on your behalf. Get a statement from your health insurance company for the total amount of the premiums you paid in the previous year. Have all of your medical related receipts and bills in front of you when you are doing your taxes.
Total up all of your medical expenses for the year including the medical and dental bills you paid as well as the premiums from your health insurance plan. Deduct the amount that your insurance plan paid on your behalf to get the total medical expenses you paid for out of pocket. Enter that amount on line one of Form 1040 Schedule A (see links below).
Look at line 38 of your IRS form 1040 (your adjusted gross income or AGI). Enter your AGI on line two of Schedule A. Multiply the AGI by 7.5%. (.075) and enter the resulting figure on line three. Now subtract that amount--line three, 7.5% of your adjusted gross income--from your total medical expenses paid out of pocket from line one. (This step is necessary because you can only deduct the amount of your medical expenses that exceeds 7.5% of your adjusted gross income.) Enter the total resulting amount on line four of Schedule A. This is your allowable medical deduction.
After you finish adding in your other itemized deductions, such as any real estate taxes and charitable contributions, add all of your deductions, including the medical portion and enter the total on line 29 of Schedule A (Total Itemized Deductions). Keep in mind that the amount of your itemized deductions might be limited depending on your income (see the questions asked on line 29 of Schedule A).