The reader actually presents an interesting tax situation. He will earn about $20,000 this year, goes to college, and is thinking about spending $2,000 to $4,000 on laser eye surgery. Read the original question, and post your own suggested tax strategy.
Here's my own answer to the reader's situation:
Let's approach your tax situation step-by-step.
First, your income. Your total income this year will be around $20,000. You didn't mention any spouse or children, so let's go on the assumption that you are Single with no dependents. Before we even dig into your medical expenses or college expenses, you qualify for a standard deduction of $4,850 and a personal exemption of $3,100, leaving you with taxable income of $12,050, and a tax liability of $1,454.
Now, let's talk about your itemized deductions. You can certainly deduct the cost of laser eye surgery. According to IRS Publication 502 Medical and Dental Expenses, "You can include in medical expenses the amount you pay for eye surgery to treat defective vision, such as laser eye surgery or radial keratotomy." However, medical expenses, as you pointed out, are limited to the amount over 7.5% of your adjusted gross income, which in your case is $20,000. And 7.5% of $20k is $1,500. So, you can claim medical and dental expenses for the amount you spent over $1,500. That means, if your laser surgery costs $2,000, you can only deduct $500 as an itemized deduction on your Schedule A. If you go for the higher priced surgery ($4,000), your itemized deduction would be $2,500.
Now, if you have other medical and dental expenses, you can certainly claim those as well. As long as your TOTAL medical expenses are more than the $1,500, you can claim the amount over that threshold.
Now, you don't mention other medical expenses or deductions. So, if your laser eye surgery is the only expense you paid, then it would make more sense to take your standard deduction. Your standard deduction of $4,850 is more than your total itemized deductions of $500 or $2,500.
That's not a recommendation for or against getting the laser surgery. All I'm saying is that paying for the surgery won't reduce your taxes this year. For more information on laser eye surgery, take a look at the About.com Guide to Vision.
HOWEVER, you should seriously think about taking one of the Education Credits, either the Hope Credit if you are in your first two years of college, or the Lifetime Learning Credit. This will provide you with a tax credit based on the amount of tuition and fees you paid. For example, if you qualify for the Hope Credit and you paid at least $2,000 in tuition and fees, then you could get a tax credit of up to $1,500. Based on your tax liability of $1,454, getting the Hope Credit would reduce your tax to zero, and you would not have to pay anything to the IRS.
Finally, you did not mention any withholding from your paycheck. You did mention you were "exempt," which usually means you did not have any income tax withheld from your paycheck. I generally recommend that people claim zero or one allowances on their W-4, so they can avoid owing taxes at the end of the year.
Have additional suggestions? Post your own recommendations, thoughts, or strategies!
