Tax Deduction: Health Costs

Figuring out your tax liability is kind of like a game or a treasure hunt. You have to look for ways to lower your liability, usually through deductions (which lower your taxable income) and credits (which apply to the tax that you owe). If you are looking for some solid tax deductions, you can turn to your health care costs. Here are three ways to lower your taxable income with health cost deductions:

1. Health insurance premiums

If you aren't participating in an employer-sponsored health insurance plan, you can deduct the premiums you pay. This is an above-the-line deduction, taken on the front side of your Form 1040. Add up the premiums you paid for your own insurance, and then deduct them, lowering your adjusted gross income (AGI).

2. Itemize medical costs

Even if you have an employer-sponsored health plan, you can itemize medical costs not covered by your health insurance -- including your co-pays. This is figured on the back side of the Form 1040, as part of Schedule A, itemizing to lower your taxable income after your AGI is figured. However, you can only itemize these expenses if they are more than 7.5 percent of your AGI.

3. HSA contributions

Have a Health Savings Account? If so, your contributions are tax-deductible, coming out of your pre-tax income. There are limits to how much of your contribution can be deducted, though, so check into that. If you qualify for a HSA, its worth looking into.

Of course, before you take any deductions, you should make sure you are eligible for them, and you should consider consulting a knowledgeable tax professional who can help you determine whether you really can take these deductions.