Giving to Charity Benefits Me At Tax Time
When I give to an official 501(c)(3) charity, I not only reap the benefits of feeling very good about myself, I also get a healthy tax deduction between 25% and 30% of the value of the gift.
In other words, if I give the United Way $1000, about $300 is taken off my tax bill – pretty cool!
I can give as much as I want. However, only the donation amount below 20% of my income is tax deductible.
Ironically, the opposite tax rules are applied to deducting medical expenses.
Paying for Healthcare Hurts Me At Tax Time
As a business owner, my husband and I sometimes have bust years, where we get little work and few of our clients pay on time; and boom years, when we are awarded lots of contracts, everyone pays on time, and even those who have owed us money from the past pay in full.
One year, we were hit hard with dental expenses. Although we had dental insurance, it didn’t cover any work other than x-rays, cleanings, and a percentage towards fillings. I had to replace several old and crumbling fillings and my husband had to have dental surgery. These were all expensive procedures and we ended up writing checks to the dentist for over $5,000. Our health insurance premiums at that time were around $400 per month, so combined with the out-of-pocket expenses, we spent about $10,000 in healthcare that year. I felt fortunate that we had a good income that particular year and could afford to pay the high medical bills.
At tax time, I thought for sure that we would be able to deduct some of these expenses, but this was not the case. I’m not an accountant, and I really don’t think we make that much money, but my CPA said the expenses had to exceed a certain percent (currently 7.5%) of our “adjusted gross income” for that year in order to be deductible. They did not.
“What about last year?” I asked. “We only made about half as much money last year as we made this year.”
“You can’t go back in time,” he said, “But you should have had the dental procedures last year so that you could deduct them,” he explained.
“How could we possibly know that we would need this work done? And, why are we being penalized for having a good income this year?”
The Theories Behind Why Everyone Should Have Healthcare Insurance
President Barack Obama would like to make it mandatory for all Americans to buy health insurance, in the same way in which drivers are required to buy auto insurance. He noted that those who are healthy tend to not buy insurance on their own if their employer does not provide it for them.
There are two theories for why everyone should buy healthcare insurance:
First, the more people who are insured, the cheaper rates will be for all of us. The more people who pay into the reserves, but don’t need the coverage, the more money will be available to pay out claims for those who do need the coverage.
Second, should that day come where an individual who does not have health insurance suffers from some great catastrophic medical disorder, disease, or accident, they will most likely not have the money to pay their high medical bills and the burden of paying for their care will fall on the rest of us. When bills are not paid, they do not evaporate and are not absorbed by corporations or the government – unpaid bills result in higher prices and higher taxes for everyone who does pay.
Little Financial Incentive to Buy Healthcare Insurance
Other than the obvious argument, that not everyone chooses to drive a car and therefore, not all of us are required to buy auto insurance, health insurance is not cheap and when it comes time to decide where and how to spend your hard earned money, most of us would rather not spend it on something we might not need: health insurance.
In fact, when I have been without health insurance, I have always found it cheaper to simply pay out of pocket in full for doctor visits and medications, even minor surgery. Also, by paying my own way, I get to go to any doctor I please and am not limited to a “list of network doctors.” I don’t have to fight for referrals since I can make an appointment on my own.
In my early twenties, young and healthy, I was quoted insurance premiums of about $300 per month because I was of “child bearing years.” Although I made three times the minimum wage (about $3 per hour in those days), the premiums represented roughly one quarter of my take-home pay, far too much to afford. However, I considered buying the insurance anyway, because I had been having lots of ear infections and headaches and my doctor recommended ear surgery. I added up the costs of the surgery and doctor visits: about $2000; and compared it to the cost of insurance for 12 months: about $3600, plus a $1000 deductible, for a total of $4600; and decided that $2000 out of pocket wasn’t that bad after all. I put the surgery expense on my “new” credit card and paid over time.
Fortunately, many, many years later, my income is now much higher and paying for health insurance is easily doable. Plus, I am much older now and more likely to actually need the health insurance.
However, my actual medical expenses have rarely exceeded what I have paid each year in premiums, co-pays, and deductibles combined. It is easy to see why so many Americans prefer to opt out of buying health insurance entirely.
If Insurance is Tax Deductible, More Americans Will Be Motivated to Buy It
Just as charitable donations are tax deductible, I would like my medical expenses to be tax deductible, no matter my income. If I spend $1000 on health insurance co-pays, I’d like a $300 tax deduction. If I spend $10,000 a year on health insurance premiums, I’d like a $3000 tax deduction.
Which leads me to step 6 on how I would fix healthcare:
Step 6 – Healthcare insurance premiums and related expenses will be tax deductible
By Federal mandate, health insurance premiums are tax deductible at the rate of 30%, as well as related expenses, including: deductibles, co-pays, and expenses not covered under the individual’s health insurance plan (provided that this individual subscribes to a government approved health insurance plan).
Ideally, no “adjusted gross income” limits or maximums, or medical expense limits would apply.
Vanity medical expenses, such as unnecessary cosmetic surgery and cosmetics purchased at the drug store would not be tax deductible.
Medications and treatments, including those purchased off the shelves at the drugstore, such as Claritin and Monistat 7, would be tax deductible if a doctor writes a prescription for them.
The current medical expense tax deduction rules could be eliminated, which would further encourage individuals to buy a health insurance plan, rather than pay as they go.
What would a government approved tax-deductible health insurance plan be?
It would be a plan which covers all of the basics of a quality healthcare plan: preventive care and catastrophic care where the subscriber either pays nothing; pays a small portion of the overall medical expenses (such as 10%); or pays a small deductible before the insurance kicks in (such as $2000). What should not be approved is a health insurance plan designed to help people get a tax write-off – such as a plan with miniscule premiums, which only covers a small portion of expenses after a large deductible.
Consider making gym memberships and fees at least partially tax deductible.
If the goal is to help America become more fit, what better way to do this than to give them the financial incentive to play at the soccer club, take part in a jazzercise class, or swim laps at the pool? Just as charities must apply for 501-(c)(3) status, gyms could also apply for a similar tax-deductible status. Fees or memberships paid to these certified organizations could be given a small tax deduction, perhaps a 10% tax break.
Stay tuned for Step 7
The current medical expense tax deduction rules could be eliminated, which would further encourage individuals to buy a health insurance plan, rather than pay as they go.
What would a government approved tax-deductible health insurance plan be?
It would be a plan which covers all of the basics of a quality healthcare plan: preventive care and catastrophic care where the subscriber either pays nothing; pays a small portion of the overall medical expenses (such as 10%); or pays a small deductible before the insurance kicks in (such as $2000). What should not be approved is a health insurance plan designed to help people get a tax write-off – such as a plan with miniscule premiums, which only covers a small portion of expenses after a large deductible.
Consider making gym memberships and fees at least partially tax deductible.
If the goal is to help America become more fit, what better way to do this than to give them the financial incentive to play at the soccer club, take part in a jazzercise class, or swim laps at the pool? Just as charities must apply for 501-(c)(3) status, gyms could also apply for a similar tax-deductible status. Fees or memberships paid to these certified organizations could be given a small tax deduction, perhaps a 10% tax break.
How I Would Fix Healthcare
Step 1 – Employers must provide a minimum $300 health insurance policy allowance for each and every worker.
Step 2 – Insurance agencies may not take more than $40 per policy for profit and administrative costs.
Step 3 – Protect Health Insurance Surplus Coffers
Step 4 – Preventative Healthcare Maintenance Schedule
Step 5 – Improve Healthcare Access
Step 6 – Tax Deductible Health Insurance Premiums and Related ExpensesStep 1 – Employers must provide a minimum $300 health insurance policy allowance for each and every worker.
Step 2 – Insurance agencies may not take more than $40 per policy for profit and administrative costs.
Step 3 – Protect Health Insurance Surplus Coffers
Step 4 – Preventative Healthcare Maintenance Schedule
Step 5 – Improve Healthcare Access
A. Institute a “public option”;
B. Regulate rates with blind menu pricing; and/or
C. Provide free clinics and access to community health centers
Stay tuned for Step 7
