Quick overview

Tracking medical expenses is the organized, year‑long process of recording out‑of‑pocket healthcare costs so you can claim eligible amounts on Schedule A when you itemize. The IRS lets you deduct qualified medical and dental costs that exceed 7.5% of your adjusted gross income (AGI) (see IRS Publication 502). Accurate records—not vague memory—are what turn scattered bills into real tax savings.

Why tracking matters (and who benefits)

  • Itemizers with large out‑of‑pocket medical bills (surgery, long‑term care, multiple prescriptions) can reduce taxable income when total eligible expenses exceed 7.5% of AGI (IRS Pub. 502).
  • Self‑employed taxpayers must also separate personal medical expenses from business costs (see IRS Pub. 535 for business‑related rules).
  • Even modest recurring costs (copays, prescriptions, medical mileage) add up. Small amounts that are well documented often push a taxpayer over the AGI threshold.

Step‑by‑step tracking system you can implement today

  1. Create a single place for records
  • Choose a digital folder (cloud drive) and a matching physical folder for originals. Name folders by year: “Medical Expenses 2025.”
  1. Capture receipts and statements immediately
  • Scan or photograph invoices, prescriptions, Explanation of Benefits (EOBs), mileage logs, and receipts. Use one naming convention (YYYY‑MM‑DDProviderType).
  1. Use simple categories
  • Typical categories that align with IRS guidance: doctor visits, hospital/ER, prescriptions, dental, vision, medical equipment, therapy, caregiver/long‑term care, travel & lodging for treatment, and insurance premiums (if eligible).
  1. Maintain a running spreadsheet (columns to include)
  • Date of service | Provider | Category | Gross charge | Amount paid out‑of‑pocket | Reimbursed? (Y/N) | Payment method | Notes (prescription name, medical necessity)
  • At month end, total each category and the year‑to‑date out‑of‑pocket column.
  1. Track travel and mileage
  • Log dates, purpose, miles, and destinations for medical trips. The IRS publishes a standard medical mileage rate that changes annually—use Pub. 502 for the current rate and rules.
  1. Note payments from HSAs/FSAs
  • Expenses paid with tax‑favored accounts (HSA or FSA) are not deductible again on Schedule A. Mark those entries so you don’t double‑count (see IRS Pub. 969 for HSA rules).
  1. Reconcile monthly and archive quarterly
  • Reconcile your spreadsheet to bank/credit card statements monthly. Archive PDFs of EOBs and scanned receipts quarterly so year‑end preparation is a one‑day job.

Sample scenarios and practical notes

  • Chronic condition: If you have routine monthly prescriptions and multiple specialist visits, keep each invoice and a prescription printout. These add up quickly and often push totals past the AGI threshold.

  • One‑time major event: For surgery or hospitalization, collect the hospital bill, surgeon bills, anesthesia, pathology, medical equipment, and related travel/lodging receipts. List each as a separate line item in your spreadsheet.

  • Self‑employed and small business owners: Separate personal medical expenses from business healthcare costs. Employer‑sponsored plans, deductible health insurance premiums for the self‑employed, and certain medical business expenses have special treatment—consult IRS Pub. 535 and your tax advisor.

Tools that simplify tracking

  • Spreadsheets: Google Sheets or Excel templates give maximum control. Create formulas to sum categories and compute the AGI threshold impact.
  • Receipt apps: Expensify, Shoeboxed, or Microsoft Office Lens let you capture receipts and export CSVs. Many apps auto‑read dates and amounts.
  • Accounting software: If you’re self‑employed, QuickBooks or Wave can separate personal and business medical payments.

In my practice, combining a simple Google Sheet with periodic exports from a receipt app reduces year‑end prep time from days to a few hours.

What counts as a deductible medical expense?

The IRS defines deductible medical and dental expenses in Publication 502. Common deductible items include:

  • Payments to doctors, surgeons, dentists, and specialists
  • Hospital care, nursing services, and inpatient treatment
  • Prescription medications and insulin
  • Durable medical equipment (crutches, wheelchairs) when medically necessary
  • Medical travel and lodging when primarily for and essential to medical care (follow mileage rules in Pub. 502)

Remember: cosmetic procedures, most over‑the‑counter drugs (unless prescribed), and expenses reimbursed by insurance or an HSA/FSA are not deductible. For exact definitions and examples, see IRS Publication 502.

How to calculate what you can deduct

  1. Total all eligible out‑of‑pocket medical expenses for the tax year (excluding items paid with HSAs/FSAs or reimbursed).
  2. Compute 7.5% of your AGI. Only the portion of medical expenses that exceeds this amount is deductible on Schedule A.

Example: If your AGI is $60,000, 7.5% equals $4,500. If your eligible medical expenses are $7,000, your deductible amount is $2,500.

Common pitfalls and how to avoid them

  • Double‑counting expenses paid from an HSA/FSA: Flag and exclude them from the Schedule A list.
  • Forgetting small recurring items: Keep a weekly habit of photographing receipts; small copays add up.
  • Mixing personal and business costs: For the self‑employed, keep separate records and consult Pub. 535 for business‑related limitations.

Audit‑ready documentation (what auditors look for)

  • Original bills and receipts showing date, provider, and amount
  • EOBs and statements showing insurance payments and patient responsibility
  • Proof of payment (bank/credit card statements or cleared checks)
  • Mileage logs with dates, purpose, and miles

If audited, consistent, contemporaneous records are far easier to defend than reconstructed calendars. Keep a digital backup and keep originals for the period you choose to retain.

How long to keep records

The IRS generally recommends keeping tax records for at least three years. Some situations (large understatements or claims involving loss/carrybacks) can require longer retention—consult the IRS recordkeeping guidance or your tax professional for specifics.

When to consult a tax pro

  • If your medical expenses are large relative to AGI and you want help maximizing allowable items.
  • When you have mixed business and medical claims (self‑employed, shared household expenses, or employer reimbursements).
  • If you receive an IRS notice or expect a complex audit.

If you’re deciding whether itemizing will help at all, contrast your medical totals with other itemizable amounts. See our checklist on when it makes sense to itemize for a simple decision framework: When Itemizing Makes Sense: A Simple Decision Checklist (https://finhelp.io/glossary/when-itemizing-makes-sense-a-simple-decision-checklist/).

For lists of other common deductions to track, review Common Itemized Deductions People Forget to Track (https://finhelp.io/glossary/common-itemized-deductions-people-forget-to-track/). Also read our broad overview of itemized deductions and limits: Itemized Deductions: What You Can and Can’t Claim on Your Taxes (https://finhelp.io/glossary/itemized-deductions-what-you-can-and-can-t-claim-on-your-taxes/).

Quick checklist to follow each month

  • Scan and save all medical receipts and EOBs.
  • Add new entries to your spreadsheet and mark items paid with HSA/FSA or reimbursed.
  • Reconcile totals with bank and credit card statements.
  • Update mileage logs and keep a separate file for travel receipts.

Final notes and professional disclaimer

Careful, contemporaneous tracking converts scattered healthcare bills into real tax relief when you itemize. In my 15 years advising clients, the taxpayers who win the most are the ones who document everything and reconcile monthly. This guide is educational and does not replace individualized tax advice. For decisions that materially affect your tax return, consult a qualified tax professional.

Authoritative sources

*Internal links: When Itemizing Makes Sense: A Simple Decision Checklist — https://finhelp.io/glossary/when-itemizing-makes-sense-a-simple-decision-checklist/; Common Itemized Deductions People Forget to Track — https://finhelp.io/glossary/common-itemized-deductions-people-forget-to-track/; Itemized Deductions: What You Can and Can’t Claim on Your Taxes — https://finhelp.io/glossary/itemized-deductions-what-you-can-and-can-t-claim-on-your-taxes/*