Some DNA test costs are tax deductible. Are smartwatches, other health apps next on IRS-OK list?
Monday, September 30, 2019
My exercise class instructors are trying to kill me. OK, not exactly and not me specifically, but for all practical purposes I'm on their hit list.
My fitness club's new teachers are real feel-the-burn, you-can-do-it types. Plus, due to some recent pressing personal matters, I haven't made it to my regular classes for a while. Now that I'm attending again, my out-of-practice aging body is having a harder time keeping up with the reps.
I'm thinking of adding in some workouts on my own to get into class-ready shape. Sort of the clean the house before the maid arrives approach to personal fitness.
I could use one of the many available smartphone apps to help me tune and tone up. Or I could go all out and get a smartwatch. Apple's latest sort-of timepiece comes loaded with health-monitoring features.
And one day, I might even be able to deduct some of the watch or phone app costs on my tax return as an itemized medical expense.
That's the thinking in the tax world as the Internal Revenue Service confronts new technologies and their integration into our personal and medical lives.
Current medical deductions: The Internal Revenue Code already recognizes a wide array of medical expenses, both for tax deduction and tax-favored medical spending account purposes.
The general definition of an allowable medical expense is something that includes "the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body."
These expenses, to be of tax value, must be prescribed by a licensed medical physician, whether you use medical spending account money to pay for them or itemized them on Schedule A when you file your annual tax return.
The IRS covers the ins, outs and sometimes arcane exceptions to allowable medical expenses in its 27-page Publication 502.
Deductible DNA: That IRS document could be updated thanks to an IRS decision this May.
In a private letter ruling issued to 23andMe, the IRS said that individuals who buy that brand of DNA collection kit and pay extra to include the genetic testing can allocate the price of the kit between the nondeductible ancestry services and the deductible health testing.
The amount for tax purposes, according to the 23andMe website, comes to around $117 in connection with the $199 version of its health-and-ancestry kit. The company has an online calculator to help you determine your tax deductible or spending account eligible amounts.
Note that the IRS determination was in a ruling specific to 23andMe. Such private letter rulings are, as the section below from the letter notes, are "directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent."
But despite the no-precedent warning, such letters do offer a look into how the IRS views overall tax matters raised by specific taxpayers. That's why the general tax watcher consensus is that similar deduction and spending account allowances will be made for other DNA tests.
Apps, smartwatches up next: That's also why there's speculation that smart device diagnostics soon will join DNA tests on the approved deductible medical expenses list.
Marianna Dyson, a tax and benefits lawyer at Covington & Burling LLP in Washington, D.C., told the Wall Street Journal that the 23andMe ruling is notable because it shows the IRS' willingness to let the taxpayer break out the tax-advantaged portion from the cost of a bundled consumer product.
"This shows some forward thinking by the IRS with multifunctional devices, platforms, software, [about] an allocation approach that's reasonable," Dyson said.
The thinking is that since these devices monitor various bodily conditions, such as heart rate and blood pressure, as well as provide other health-related feedback, they seem to logically qualify along the same line the IRS used in coming to its DNA test tax break determination.
The argument that the devices' services should qualify as medical expenses also is bolstered by another federal agency's prior approval.
The U.S. Food and Drug Administration has approved the Apple watch's electrocardiogram heart-monitoring technology, meaning it can be used as a medical device.
Spending accounts more likely than deductions: Even if the IRS does indeed broaden the DNA testing decision and eventually expand medical expenses to include smart device apps and options, it probably won't help a lot of taxpayers at filing time.
As noted, deductible medical expenses must be itemized. Since the Tax Cuts and Jobs Act (TCJA) expanded the standard deduction amounts, fewer filers are using Schedule A.
Plus, it will be harder to deduct medical expenses on 2019 federal returns if lawmakers don't take tax extenders action. Right now, the adjusted gross income threshold for claiming medical costs as itemized deductions goes from 7.5 percent to 10 percent.
It's possible lawmakers could act to keep the lower and easier to reach 7.5 percent threshold, but nothing's certain with any Congress and especially not this current Capitol Hill group.
The better tax break possibility for any added medical expenses goes to folks who have medical spending accounts, such as a flexible spending account (FSA) or health savings account (HSA).
If you don't have one of these accounts, consider looking into them as the annual fall workplace benefits open season nears. You might have an added technologically aided medical expense you can pay with these account's pre-tax dollars.
You also might find these items of interest:
- Medical tax provisions affected in 2019 by inflation
- Thumbing through the IRS' medical deduction (or not) list
- New IRS guidance expands high deductible health plan HSA options for treatment of chronic medical conditions
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