Tax season is here, and I want to talk about one of the most misunderstood deductions: medical expenses. As a former IRS auditor turned tax prep specialist, I see clients leave money on the table every year because they don’t track their medical costs properly.
The 7.5% AGI Threshold Rule
Here’s the deal: You can deduct medical and dental expenses that exceed 7.5% of your Adjusted Gross Income (AGI) — but only if you itemize on Schedule A. This threshold became permanent in 2021, and it’s a tough bar to clear for many taxpayers.
Let me give you a concrete example. Say your AGI is $60,000. You need to spend more than $4,500 ($60,000 × 0.075) in unreimbursed medical expenses before you can deduct a single dollar. If you spent $6,000 on qualifying medical costs, you could deduct $1,500.
The catch? Only expenses NOT reimbursed by insurance count. And you have to itemize, which means your total itemized deductions (medical, mortgage interest, charitable donations, etc.) need to exceed the standard deduction ($15,000 single, $30,000 married filing jointly for 2026).
The Tracking Problem
Most people don’t meticulously track medical expenses because they assume they won’t hit the threshold. But here’s what I’ve learned from 12 years as an EA: You don’t know until you track it.
I’ve seen clients with chronic conditions, families with unexpected ER visits, or folks who had elective surgery dismiss the deduction entirely — only to discover they actually exceeded the threshold when we reconstructed their expenses from EOBs and receipts.
The Beancount Advantage
This is where Beancount becomes invaluable. Instead of scrambling through shoeboxes in April, you track EVERY medical expense year-round. Here’s my recommended approach:
Account Structure
Expenses:Health:Insurance ; Premiums (often not deductible if pre-tax)
Expenses:Health:Medical ; Doctor visits, procedures
Expenses:Health:Dental ; Dentist, orthodontics
Expenses:Health:Vision ; Eye exams, glasses, contacts
Expenses:Health:Prescriptions ; Pharmacy copays
Expenses:Health:Therapy ; Physical therapy, mental health
Expenses:Health:Equipment ; Medical devices, hearing aids
Essential Metadata
For every medical transaction, I tag:
provider:(e.g., “Kaiser”, “Dr. Smith”)insurance_claim:(claim number if applicable)reimbursed:(TRUE/FALSE)fsa_eligible:(TRUE/FALSE if you have FSA/HSA)
Example transaction:
2026-02-15 * "Orthopedic consultation - knee pain"
Expenses:Health:Medical 250.00 USD
provider: "Dr. Rodriguez"
insurance_claim: "CLM-2026-045821"
reimbursed: FALSE
fsa_eligible: TRUE
Liabilities:CreditCard
What Qualifies? (More Than You Think!)
The IRS Publication 502 lists dozens of qualifying expenses. Some surprises:
- Mileage to/from medical appointments (21 cents/mile in 2026)
- Lodging (up to $50/night) for overnight medical travel
- Guide dogs for blind/deaf individuals
- Weight-loss programs for doctor-diagnosed obesity
- Smoking cessation programs
- Lactation supplies
What does NOT qualify:
- Cosmetic procedures (unless medically necessary)
- Over-the-counter meds without prescription
- Gym memberships (even if doctor recommends)
Multi-Year Strategy: The “Bunching” Technique
Here’s a pro tip: If you’re hovering near the 7.5% threshold, consider bunching elective medical expenses into one tax year. For example:
- Schedule elective surgery in December instead of January
- Accelerate dental work or new glasses into the same year
- Pre-pay January medical bills in December
Beancount makes this planning visible. Run a query in November to see where you stand, then strategically schedule procedures.
Year-End Tax Prep Query
At tax time, I run this query to isolate deductible expenses:
SELECT
account,
sum(position) as total,
count(*) as transactions
WHERE
account ~ 'Expenses:Health'
AND year = 2025
AND metadata('reimbursed') = 'FALSE'
GROUP BY account
ORDER BY total DESC;
This gives me a clean breakdown of unreimbursed costs by category, ready for Schedule A.
The Audit Reality
If you DO claim medical expense deductions, expect IRS scrutiny. I’ve handled audits where clients couldn’t produce documentation and lost thousands in disallowed deductions.
Beancount’s transaction-level notes + digital receipt storage (link PDFs in metadata or use document management folder structure) creates an audit-proof system. When the IRS asks for proof of a $1,200 dental expense, you can produce:
- The transaction with date, provider, amount
- The receipt PDF
- The insurance EOB showing it wasn’t covered
Your Turn: How Do You Track Medical Expenses?
Do you track every medical cost, or wait until you know you’ll exceed the threshold? What’s your Beancount account structure? Any clever metadata or query strategies to share?
For those who’ve been through an IRS audit involving medical expenses, what documentation made the difference?
Let’s build a community resource for tax-compliant medical expense tracking!
Disclaimer: This is general tax information, not personalized advice. Consult a tax professional for your specific situation.