How to maximize your tax benefits from medical expenses this year

The tax deduction for medical expenses was expanded for this year but will be harder to take advantage of in 2019.

If you have a flex-spending account or health savings account, it can effect how you approach the deduction.

You must itemize your deductions to use the one for medical expenses.

With more than six months left until 2018 tax returns are due, it might seem way too early to think about anything tax-related.

Yet when it comes to your health-care costs, there are some strategic moves you might be able to make this year to maximize their tax benefit.

Experts say it's worth exploring, as the cost of health care continues its upward trajectory. Last year, per-household spending increased to an average $4,928, up 6.9 percent from $4,612 in 2016, according to recent data from the Bureau of Labor Statistics.

Additionally, Fidelity Investments estimates that the average couple turning 65 today will spend $280,000 on health care during the remainder of their lives.

The three most common planning opportunities involve flexible spending accounts, health savings accounts and the tax deduction for medical expenses. They intertwine in interesting ways, so it's important to evaluate your own situation to see if there are ways you can maximize their value for 2018, experts say.

The FSA factor

If you have a health flexible spending account, or FSA, at work, your pre-tax contributions come with a use-it-or-lose-it provision when the year ends.

While many employers provide either a grace period of up to 2½ extra months to spend it on eligible costs or allow you to carry over $500 to the next year, it's important to make sure you don't end up forfeiting that tax-advantaged money.

"If you have an FSA, the priority is to spend that money first," said certified financial planner and CPA DeDe Jones, managing director of Innovative Financial in Lakewood, Colorado.

The 2018 contribution limit for FSAs is $2,650, although many people don't max out.

Generally speaking, if you have already depleted your FSA (or don't have one), the next consideration is whether your 2018 medical expenses will get you a deduction on your tax returns.

The tax deduction

While the tax deduction for medical expenses will likely be used by fewer people this year, those who might be able to grab it should be aware that it will become even harder to do so next year. This means you might want do some things differently this year than you would otherwise.

You must itemize your deductions to take advantage of the tax break for medical expenses. And due to the near-doubling of the standard deduction for all taxpayers and the elimination of personal exemptions and most other deductions, fewer people are expected to itemize beginning with 2018 returns.

Additionally, you can only deduct medical expenses that exceed 7.5 percent of your adjusted gross income. However, that floor is set to rise to 10 percent next year.