Prepayment of dental costs

As a cash basis taxpayer, you can not deduct medical/dental expenses you prepay unless you are contractually obligated to make the payment in advance of services. In other words, unless the doctor/dentist required an advance payment in 2008, you can not take a deduction in 2008.

The language in Pub 502 refers to not deducting expenses in the current year for care "provided substantially beyond the end of the year", so if the work is largely complete by the end of the year, that would qualify. Why can't she just receive and pay for the treatment this year?

Just as important as the timing is the nature of the expense, is it cosmetic (not deductible), or to treat or prevent an illness or defect?

You should also do what you can to lower your AGI in order to increase the amount of medical expenses that fall above 7.5% of AGI (10% if subject to AMT). Capital losses and IRA contributions are two common items you may have some control over.

Also consider establishing a health savings account or employer-provided flex spending account, then next year's expenses will be fully deductible no matter what.

Last and probably least, if your wife has her own income subject to tax but it's significantly lower than yours, and she pays the expenses from her own funds, there might be some benefit to filing separately this year (larger amount deductible by her if she can still itemize), but the rules for figuring who actually paid are strict, especially if you are in a community property state. And of course, under MFS if one of you itemizes, you both must, plus there are many other potential drawbacks.

-Mark Bole

Thanks for your response. She had a tooth extracted early this year by a dental surgeon and an implant installed. The final step is a crown which is done by her regular dentist and cannot be done until the first or second quarter of 2009 when the implant heals sufficently. The insurance will pay little of the implant costs and we are not sure how much it will play for the crown. We are both retired and our dental insurance is pretty poor when compared to what we had when we were working.

I'm going to purchase (as I do each year at this time) TurboTax or Tax Cut shortly so I can get a handle on what my tax situation is and if I need to pay estimated taxes in Dec. With the stock market in the tank, the large mutual fund distributions that we have received the past few years will be pretty much zero this year so that will help.