Friday, April 30, 2010

The Epilogue to Tax-Deductible Medically-Necessary Foods

I just came back from a session with the year-round H&R Block office, and a fellow Celiac tax agent set me straight on all this mess:

1. She advises AGAINST trying to write off these foods under the itemization of medical expenses because there is no formal set ruling on whether or not gluten-free foods are indeed deductible, even though there are letters and memos from the IRS stating that there are. Since there is nothing on the IRS website, and no publications, these foods are a BIG RED FLAG for audits. You may win your audit (or not) with the following citations, but you have to get to audit point to prove your point--a major hassle:

IRS rulings
* IRS Revenue Ruling 55-261
* Cohen 38 TC 387
* Revenue Ruling 76-80
* 67TC 481
* Fleming TC MEMO 1980 583
* Van Kalb TC MEMO 1978 366

2. Since the floor for medical deductions is now a hard-to-reach 7.5% of your AGI, and soon to go to 10%, she advises not to bother. Instead, she advises to go the pre-tax HSA medical expense route, because there is no floor or limit on what you have to spend (except what you put into the account to begin with). No matter how high the medical expense deduction floor goes, the HSA will always have no limits up or down. You also cannot do both the HSA and the medical expense itemization.

3. No matter which way you choose to go, your register receipts for gluten-free items have to designate "gluten-free" items and not just general item classifications--in other words, you buy brown rice pasta, a GF product. The register receipt had better say GF (or some indicator of gluten-free) on it, or the IRS (or insurers) won't know if it's GF pasta, or just very pricey gourmet wheat pasta. If they can't readily tell, then you don't get the deduction/expense. This is ON TOP of the other requirements of only claiming the price difference minus 7.5%, or claiming 100% of xanthan/guar gum prices minus the 7.5% floor. The year-round tax lady and fellow Celiac says there are just too many hoops to jump through to make it feasible for most.

This ends the food-as-medical expense saga, as I'm planning to go the HSA route next year. By then, my crops will be in, and my food purchases should be less. Meanwhile, I have to let my health food store owner know what the tax people told me, so she can let her customers know, and so she can start figuring out how to make her register tapes start showing GF products.


Post a Comment