Last week, I received a call from a friend. She mentioned that her husband had knee surgery this year, and with the implant, the hospital bills were quite high. She asked if this could be deducted from taxes.

My response was, "Yes, it can be deducted, but the threshold is higher than you might think." I added that if she thought she might exceed that threshold, she needed to act now, in November.

Today, I'll break this down step by step. The medical expense deduction is something only those in the know take advantage of, so having this information organized can be very useful.

First, let's go over the basic rules. The IRS allows deductions only for the portion of unreimbursed medical expenses that exceeds 7.5% of your adjusted gross income (AGI).

To put it in numbers, if your AGI is $80,000, then 7.5% is $6,000.

If you incurred $9,000 in medical expenses that year, only $3,000 (the amount over $6,000) would be eligible for deduction. If your medical expenses were $5,000, then the deduction amount would be $0.

The second threshold is even higher. This deduction can only be claimed if you itemize deductions on Schedule A.

For the 2026 tax year, the standard deduction is $16,100 for singles and $32,200 for married couples filing jointly. The total of your excess medical expenses, mortgage interest, state and local taxes, and charitable contributions must exceed these amounts for itemizing to be worthwhile.

Honestly, when I first saw these numbers, I felt a bit deflated. For most households, the standard deduction is more beneficial, so the medical expense deduction is only advantageous in years with significant medical issues.

However, if this year happens to be that "significant year," the situation changes. If you've already exceeded or are close to the 7.5% threshold, there are actions to take before year-end.

The medical expense deduction is based on the actual amounts paid during the year. Money spent by December 31 counts for this year, while money spent in January counts for next year.

So, if you've already exceeded the threshold this year, it may be financially beneficial to get any postponed dental work, new glasses, or hearing aids done before the year ends. Once you exceed the threshold, the deduction amount increases with every dollar spent.

Conversely, if you anticipate larger expenses next year, it might be better to push this year's expenses into next year. Deductions are calculated separately each year, so it's easier to exceed the threshold by concentrating expenses in one year.

Here's a tip that many people overlook. According to IRS Publication 502, medical expenses paid with a credit card are considered expenses for the year in which the charge was made, regardless of when you pay the credit card bill.

This means that if you charge something in December, it counts for this year's deduction even if you pay it off in January. This can be a useful rule for those with tight cash flow.

You should also carefully review what expenses qualify. Basic expenses include doctor visits, hospital stays, prescription medications, dental care, glasses, and hearing aids.

Health insurance premiums paid with after-tax dollars also qualify. However, premiums deducted from your paycheck pre-tax have already received tax benefits and cannot be claimed again.

Long-term care insurance premiums are also included, but there are limits based on age. Transportation costs to and from medical appointments, parking fees, and tolls are included, and mileage is calculated at the medical rate set by the IRS.

On the other hand, cosmetic procedures, general health maintenance vitamins or supplements, and gym memberships are generally excluded. Over-the-counter medications purchased without a prescription are also not deductible.

Additionally, funds withdrawn from HSAs or FSAs cannot be deducted again, as they have already been paid with tax-free dollars, meaning double benefits are not allowed.

Since I often talk about animals, I frequently get asked, "What about my dog's surgery?" Unfortunately, pet medical expenses do not qualify for the medical expense deduction.

There is an exception. The costs associated with service animals, such as guide dogs for the visually impaired, including purchase, food, and veterinary expenses, are recognized as medical expenses in Publication 502.

Let's summarize what to do before year-end. First, gather all your hospital, pharmacy, and insurance statements from January to now.

Downloading the EOB from your insurance portal will give you a clear view of your out-of-pocket expenses. You can request an annual summary from your pharmacy app or at the counter.

Next, multiply your expected AGI for this year by 7.5% to get an estimate of your threshold. Knowing this number will help you decide whether to accelerate or defer spending in December.

Of course, the timing of medical treatments shouldn't be dictated by taxes. Always consult with your doctor or pharmacist about treatment schedules, and consider taxes as a secondary issue.

I appreciate this system. It's structured so that those who manage their records properly can receive their rightful benefits, rather than waiting for the government to take care of it.

However, whether to itemize or the involvement of state taxes can complicate calculations. If significant amounts are at stake, I recommend checking in with a tax professional before year-end.

I told my friend the same thing. I advised her to pull out her box of receipts and that we would handle the calculations afterward. For those who have had many medical expenses this year, be sure to take a look before December 31.