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Jacob Seamans
Jacob Seamans, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 0
Experience:  Certified Public Accountant
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I live in Houston, TX. I have been on disability and have

Customer Question

I live in Houston, TX. I have been on disability and have been receiving monthly non-taxed $3040.60 (60% of my original salary) since January. I received a bonus in March 2011 for the previous year's work, which was already taxed. I have been going to MD Anderson for medical treatment. Due to a misunderstanding my company revoked my health insurance on March 31, 2011. I did not receive this news until June, so I was still going to the doctor. Just recently, MD Anderson (the famous cancer facility) sent me a $12,618.00 bill for visits and procedures done after March 31, 2011. MD Anderson gave me basically two options. I can set up a payment plan with them and pay the full asking amount over time or I could pay a lesser amount (example: what the insurance company would agree to pay them. Typically way less of course maybe 80%). I would have to pay in full now in 2011 if I wanted to pay the lesser amount. Since I have not paid taxes on the monthly $3,040.60, I will have to pay the IRS in April. My question is. . . is it smarter to pay the lesser amount of medical bills in 2011 in order to get a deduction from my taxes in April or should I wait and pay the higher bill on a payment plan?

On a more personal note, they have still not diagnosed me after all of this time, so they are basically asking me to "buy a car" for nothing. I am still sick. I will have health insurance again starting January 2012.

Any help would be greatly appreciated. Thank you.
Submitted: 5 years ago.
Category: Tax
Expert:  Jacob Seamans replied 5 years ago.

Hi, I can help you with your question.

 

Paying the full (20% less) amount in 2011 would provide you a savings of $2,523.60, without considering the medical expense tax deduction.

 

Alternatively, using a payment plan to pay the full $12,618 would allow for a 20% greater deduction on the combined tax returns for the years in which the plan covers. Please note, however, the deduction is only available for taxpayers who itemize their deductions. The increased deduction would then only provide a percentage (35% or less) of the $2,523.60 mentioned above.

 

Assuming funds are available, paying the full (80% less) amount in 2011 would provide the most savings.