What do acupuncture fees, ambulance services, drug treatment costs, your optometrist's bill and the purchase of a new wheelchair have in common? All of these expenses can, under the right circumstances, be used to help lessen your annual tax burden.

According to the Internal Revenue Service, medical or dental expenses that qualify as deductible include those for the diagnosis, cure, mitigation, treatment or prevention of a physical or mental illness or defect.

Medical expenses that are purely for cosmetic reasons, or those that are merely beneficial to a person's general health, are not deductible.

But if you or someone in your family has incurred large expenses related to a disease or disability, you'll want to keep careful records of those costs.

A figure equal to 7.5 percent of your adjusted gross income must be subtracted from the total of your unreimbursed medical expenses to determine your medical deduction. (Your adjusted gross income is your total income, minus certain adjustments such as IRA deductions, see example below.)

Medical Expenses - [(.075) x (Adjusted Gross Income)] = Medical Expense Deduction

If your medical expenses are $3,000 and your adjusted gross income is $25,000
3,000 - [(.075) x (25,000)]
3,000 - 1,875 		= 1,125

YOUR MEDICAL EXPENSE DEDUCTION IS $1,125.

When deducting, you can include expenses incurred by yourself, a spouse, a child or another dependent. The dependent need not be the person you claim as an exemption. You must use Form 1040, Schedule A, in order to deduct. (You can't use Form 1040A or 1040EZ.) If insurance or any other party paid for a portion of an expense, you can't include that portion in your expenses.

QUALIFYING EXPENSES

You can deduct an expense for 1996 if you paid for it in 1996. This holds true even if the service or equipment you're paying for was provided, say, in late 1995. If you pay by mail, the day you mail a check is the date of payment.

What kinds of medical costs are legitimately deductible? Medical insurance premiums are, and that includes premiums paid for federal voluntary Medicare insurance (Medicare B). Fees for doctor visits, hospital stays, wheelchairs, crutches, eyeglasses, and hearing aids are all deductible.

Also usually covered are fees for ambulance services, artificial limbs, lab work, therapy, X-rays, prescribed medicines, operations, oxygen, psychiatric care, and Braille books. (See IRS Publication 502, "Medical and Dental Expenses," for more information.)

Nursing services are deductible, even if the person providing the care isn't a trained health professional.

Other qualifying expenses are electricity and battery costs for running medically necessary equipment such as wheelchairs. Some special education fees and some transportation costs for the purpose of receiving medical care are deductible.

Capital expenditures to modify a home to make it accessible are deductible, with the caveat that you can only deduct the modification expense that exceeds the increase in the value of the home. However, many modifications, such as hand railings, entrance ramps, widened doorways, bathroom bars and modified electrical outlets are not considered to increase the home's value and thus can be fully deducted.

Expenses for equipping a van to make it wheelchair accessible, including adding a lift, are deductible.

In all cases, it's important to obtain and keep as much written documentation as possible from your doctor explaining the medical need for the expense, in case the legitimacy of the expense is disputed by the IRS.

If you use a tax preparer, don't assume that he understands the wide range of expenses that may be necessitated by a disability. Make the preparer familiar with the nature of the disability and the kinds of difficulties it imposes, so he can better represent your interests when preparing your return.

INSURANCE CONCERNS

"Many people in the disability community believe we should have universal health coverage," says Bill Altaffer, an attorney in Tucson, Ariz., who has spinal muscular atrophy and serves on MDA's National Task Force on Public Awareness. "If we did, hopefully those items that we're deducting would be covered by insurance."

Several years back, Altaffer purchased an expensive motorized stand-and-recline wheelchair. MDA helped with a portion of the expense, and Altaffer's insurance covered another portion. The remaining thousands of dollars he had to pay himself, his only consolation being that he was able to soften the blow by deducting that portion from his taxable income.

With the increasing trend toward managed care, insurance providers may show less flexibility -- and less generosity -- in covering expensive but necessary items such as Altaffer's wheelchair, forcing consumers to rely even more heavily on tax deductions.

"As coverage changes over to managed care, the medical deduction is going to become more and more important for those who have taxable income," Altaffer says.

He points out that there are some 42 million Americans who don't have health insurance. "Deductibility for medical costs is a poor substitute for insurance for those people," he says.

CREDITS

Tax credits, unlike deductions from income, have the advantage of being taken directly from the amount of tax you have to pay.

Whether a child is disabled or not, costs for child care, generally not included under medical expenses, may entitle a family to a substantial tax credit, if you're paying for the care so you can work or look for work. Similarly, care expenses for a spouse or dependent who cannot dress, clean or feed himself due to a disability may also qualify you for a credit. (See IRS Publication 503.)

You may also qualify for the Credit for the Elderly or the Disabled if you are 65 or older, or if you are retired on permanent and total disability. This credit can go as high as $1,125. (See IRS Publication 524.)

If you're an employer, you should be aware that both tax credits and deductions may be available to qualifying businesses that spend money on modifications to accommodate employees with disabilities.

You can call the IRS with tax questions during regular business hours. Check your phone book for the local number or call (800) 829-1040. To order free IRS publications and forms, call (800) TAX FORM (TDD: (800) 829-4059).