Reference no: EM132326162

Question No. 1

Please respond the below statement. Sub: Individual Tax research and planning.

250 words with reference:

The short answer to this question is no. As described in the question, if there is no other basis for the cosmetic surgery other than Sue believes it will help her earn more tips, she won't be allowed to include the expenses related to cosmetic surgery as a deductible medical expenses (Spilker, 2019). We can also find pretty specific guidance on this situation via the IRS publications. In their guide, it is clarified that medical expenses related to cosmetic surgery can be included in deductible expenses, but only if the surgery is necessary to improve a deformity, or correct an injury that is the result of an accident or trauma (Publication 502 (2018), Medical and Dental Expenses, 2019).

In one of Dr. Ed's follow up posts to this week's question, it's added that one potential surgery would be related to repairing a nose that was damaged in an accident several years ago. In this scenario, Sue would have some eligibility to claim a deduction. She would still be limited to the amount not covered by any health insurance or paid for with a flexible spending account, and her entire deduction would be limited to a floor limitation of 7.5 percent of her AGI (Spilker, 2019). This presents a lot of caveats for Sue to consider and practically eliminates the simplified thinking of claiming a voluntary procedure as a deduction on her taxes.

The implied connection in this question that undertaking an activity to increase one's income would result in a deduction because of that decision is flawed. If we apply the same logic in a more mundane setting it is a little easier to pick apart. For example, if I purchase a nice suit because I think that will convince my boss I need a raise, that is a valid option I would like to pursue but I can't deduct the cost of my suit on my taxes. That type of thinking could cover just about any expense someone incurred just to go to work, and is why individuals are only allowed to make deductions that have specifically been allowed by the law.

I think Sue's thoughts here, and her friends suggestion, may also be connected to misunderstanding what deductions for "business expenses" would be. Just hearing the phrase, someone might be tempted to assume that if it's for a business, it can be deducted. That would ignore the fact that: (a) this isn't Sue's business, (b) this expense isn't required to run the business even if it was, and (c) it would still fall under the rules and limitations for medical expenses.

Depending on how much the procedures Sue is considering would cost, and how much she expects her income to increase as a result, she may still want to pursue them. Sue should limit any deductions on her taxes to only the costs associated with the medically required activities, and she needs to ensure she follows the floor limitation guidelines on top of that. Unless the nose procedure costs a lot, and Sue's AGI is small, it's unlikely that the uncovered expenses will breach that limit and they won't be able to be deducted anyway.

Question No. 2
Please respond the below statement. Sub: Individual Tax research and planning.
250 words with reference:

The answer overall is it depends. Generally, this would not be something that a person could deduct on a tax return. This kind of expense would not classify as a business expense so it could not be deducted that way, so it would have to be deducted as a medical expense.

Medical expenses are a from adjusted gross income deduction. This deduction is based upon meeting a floor amount of adjusted gross income. This means that a taxpayer can only deduct the amount of qualifying medical expenses that are over and above this adjusted gross income floor. If I am correct, it used to be either 10% or 15% back before the tax changes but now this floor is 7.5% (Topic Number 502 - Medical and Dental Expenses, 2019). As an example, if someone had an adjusted gross income of $100,000, then only qualified medical expenses above $7,500 are deductible. So, if one's only itemizable item was a qualified medical expense of $10,000, then only $2,500 of that would be deductible. One would then just take the standard deduction instead.

Overall, it would be pretty hard to justify using this deduction unless someone had other deductions along with it. I have seen many people send all of their medical receipts in hope of getting a medical deduction, but never making it to that floor amount. In the times that I have done tax returns, I may have seen a handful of people that got up to the floor amount requirement, let alone exceed it.

Of course, this is talking about qualified medical expenses. Unfortunately, most cosmetic surgeries are not qualified medical expenses in the eyes of the tax code. From publication 502 from the IRS:

Generally, you can't include in medical expenses the amount you pay for cosmetic surgery. This includes any procedure that is directed at improving the patient's appearance and doesn't meaningfully promote the proper function of the body or prevent or treat illness or disease. You generally can't include in medical expenses the amount you pay for procedures such as face lifts, hair transplants, hair removal (electrolysis), and liposuction.

You can include in medical expenses the amount you pay for cosmetic surgery if it is necessary to improve a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or a disfiguring disease (Publication 502 (2018), Medical and Dental Expenses, 2019).

So, this means that unless Sue has any genetic abnormality or injury that requires plastic surgery, she probably will not be able to defend in court the deduction of her plastic surgery as a qualified medical expense. In this case, Sue had an injury from a car accident that deformed her face and impedes the proper functioning of her nose. In a case like this, it is a qualified medical expense so Sue can deduct it.

For those that cannot justify the plastic surgery in such a way, one might be able to find a doctor that may be willing to vouch for the medical necessity of the procedure and it may hold up in court. For example, my girlfriend had gastric bypass surgery and, once she gets down to her ideal weight, will pay for cosmetic surgery to remove the excess skin from the core part of the body. She probably would be able to deduct this because the extra skin causes strain on her heart thus making it more medically justifiable because it is a health issue, it meaningfully prevents further health illnesses, and promotes proper function of the body.