Our busy season is in full swing here at BASE®. One common question keeps coming up. Is it deductible? The answer most of the time is YES!!

With most expenses, we are able to easily assume they are medical expenses. For example, the co-pay at the doctor’s office, the prescription you have filled at the drug store and the dentist visit to get your cavity filled. Now keep in mind, you can only deduct what your insurance doesn’t pay on these expenses. We call those expenses your "out-of-pocket" expenses.

If you don’t have any health insurance to pay a portion of those expenses the total amounts you pay would be used as a medical "out-of-pocket" expense. With a visit to the doctor costing around $200 (with no insurance) what a great benefit it is to be able to use an HRA!

Now I know at this point some skeptics are saying "But you can itemize your medical expenses". While this is true, keep in mind you would need to exceed 7.5% of your AGI (Adjusted Gross Income). So if your expenses don’t exceed that 7.5% you cannot itemize them. For example if your AGI were $50,000 the amount needed to even itemize would be $3750 in medical expenses. If you had $5000 in medical expenses you would only be able to use $1250 of them on your Schedule A. Wouldn’t it be better to be able to use the full $5000 with your HRA deduction?

The list is of approved medical expenses is long and will encompass most expenses. I will list out just a few to give you an idea of the more common ones.

• Dr fees – anything from office calls to co-pays
• Prescription drugs
• Mileage – for 2009 the mileage rate was 24 cents/mile
• Vision Care – eye exams, glasses, contacts, etc.
• Dental Care – fillings, cleanings, braces, x-rays, etc.

There are some expenses we cannot approve for an HRA deduction; I’ll share with you some of the more common ones we see.

• Vitamins – they are generally not deductible, they are for general well being. A doctor’s note or prescription must be obtained and the supplement must be to treat or cure and existing condition or illness to be allowed
• Health Club or Gym dues – are generally not deductible if they are incurred to improve one’s general health or to treat discomfort not related to a particular medical condition. Usually this cost should be left out of medical expenses.
• Missed appointment fees(doctor’s office) – theses fees are not to treat or cure an illness or injury
• Hot tubs – even if your doctor says you need a hot tub for your bad back, if your spouse soaks in it with you it is no longer a medical expense – your spouse doesn’t need it for medical. So now it is for pleasure. Anyone would have a hard time getting this approved in an audit!

If you have an HRA, keep these in mind:

• Documentation – make sure to keep all your receipts and doctor notes, they will help to back up your medical expenses if there is ever a question
• Track your medical expenses throughout the year so you don’t have to panic at year- end

If you’re questioning if an expense can be used contact a BASE® Benefit Specialist. Reference IRS Publication 502 to give you a list of what you can and cannot deduct.

Thanks for using the BASE® HRA and tell your friends about the advantages of doing so!