(Updated in 2020, regarding Tax Year 2019)
I’ve spent most of the weekend working on my income tax filing. Yeah. You know. The fun never ends.
Then the lightbulb moment arrived when I realized that you, the reader of this blog, might be interested to know whether there is a tax benefit to hiring an advocate.
So we’ll begin with my disclaimer: I am not an IRS (or CRA) agent or specialist. I am not a tax accountant or even a regular accountant or even a tax preparer. I don’t even play one on TV.
But I have spent hours on the phone with the IRS discussing this subject, and have reviewed it with real flesh-and-blood tax preparers and accountants. They all agree on the answer.
It’s just that the answer is a little complicated.
The key to the complication is that the definitive answer requires an IRS ruling, and the advocacy profession is so new that (as far as we know) the IRS has never audited someone who has taken a deduction for advocacy work. With no audit, there is no ruling, and with no ruling, we can only take an educated guess what that ruling would be.
The ruling is important because it answers the legal question of deductibility of an expense. So, for example, if Mr. Jones hired an advocate for his wife, and then deducted the cost of that advocate as a medical expense on their tax filing, and then the IRS audited Mr. Jones’ return, then the IRS would look at that deduction and decide whether or not it was valid. THAT would be a ruling that would tell us yes, or no – and then we would have a definitive answer on whether the cost of an advocate would be legally deductible.
But – that’s really just a complication for the moment. One we can deal with.
In 2010, I spent hours on the phone with an IRS representative discussing the possibility of deducting the expense of an independent, private advocate. He explained about the need for a ruling, and we walked through how those rulings are made. A dozen conversations with tax preparers and accountants since then have confirmed this line of thinking.
We began by looking at the definition, and the list of existing deductible medical expenses. (For our Canadian friends – we’re focusing here on the IRS. You can find parallel information about the CRA at their website). So here’s the IRS definition of a medical expense:
Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body…..
Medical care expenses must be primarily to alleviate or prevent a physical or mental defect or illness.
Certainly patient advocacy that assists in any medical or health-related tasks fits this definition*, not because advocates are doing those things themselves, but because we are facilitating them all in one way or another.
Then there is a master list of the aspects of care that do – and do not – fit the definition. This is where we expect, eventually, that patient advocacy will be added to the list.
According to the IRS representative and the other professionals I’ve spoken to, we merely need to find other deductible expenses that are similar to those on the list. Since advocacy is not considered a medical profession, that is a bit of a challenge…. until… wait!
Prepare yourself for this surprise… the closest already-deductible medical expense to advocacy – and likely the one that will answer the question – is…
The parallel is that guide dogs are not providing medical services per se, but they most certainly facilitate the everyday needs of that person, including helping them navigate their medical conditions.
Since the cost for owning a guide dog is deductible, then (according to those who understand these things) once advocacy expenses become included in a medical expense audit by the IRS, guides in the form of patient advocacy will most certainly be included on the list of deductible medical expenses, too.
So where does that leave you today? Should you be deducting the cost of your advocate from your tax return?*
Of course, you can’t deduct any medical expenses unless their total takes you over the threshold (7.5% of your adjusted gross income, which will increase to 10% of your AGI for Tax Year 2020).
But if you qualify by percentage, then the tax people all recommended that yes – you should take the deduction. It will most definitely save you money in taxes when you file. Even if you get audited, they are confident the deduction will be approved – and then – ta da! We will have the ruling we need, too. Once that happens, there will no longer be any question.
(And no more long, involved blog posts either!)
Are you taking a risk by deducting your advocate from your taxes before a ruling is made? Yes, you are. If you deduct the cost of your advocate and then you are audited, and for some reason, the ruling comes back that no, patient advocates are not deductible, then worse case scenario, you would then have to pay the difference in taxes. (It is unclear whether you would also pay a penalty on that difference.)
So that’s the view from 2020 (which hasn’t changed since 2010.) We’ll keep you updated here if we learn about a ruling from the IRS.
But for now, your health and your wallet have already taken a hit if you have needed an advocate. You will be doing yourself a favor if you follow the advice of those tax experts.
*Important to note!
Remembering that we are not tax accountants, and do not have a ruling from the IRS, we interpret these laws to say that you can deduct the cost of advocates who help you with medical, navigational, health-related tasks. However, helping with medical billing negotiations, or choosing a health insurance plan – those types of services are not about improving your health, per se. They are less apt to be deductible.
Originally published March 2017. Updated February 2020.