Maximizing Medical Expense Deductions: Documentation Tips

This guide explains what records to keep, how to organize them, and practical steps to substantiate medical expense deductions on your U.S. federal tax return. It draws on IRS guidance (see IRS Publication 502) and real-world client experience to give you actionable, audit-ready documentation habits.

Why documentation matters

Medical expense deductions must be itemized on Schedule A of Form 1040, and only the portion of unreimbursed expenses that exceeds 7.5% of your adjusted gross income (AGI) is deductible (see IRS Publication 502) [IRS Pub 502]. Solid documentation:

• Proves expenses were paid in the tax year you claim them;
• Shows medical necessity for non-obvious items;
• Demonstrates that expenses weren’t reimbursed by insurance or paid with pre-tax dollars (HSA/FSA); and
• Lowers the chance of an IRS inquiry or audit.

In my practice I’ve seen well-organized records convert borderline totals into legitimate deductions — and poorly documented claims delayed refunds or triggered requests for additional proof.

What records to keep (checklist)

Keep original or clearly scanned copies of the following for each expense you claim:

• Itemized bills and receipts from providers (hospital, clinic, dentist, lab, pharmacy).
• Explanation of Benefits (EOB) from your insurer showing what was billed, allowed and paid.
• Proof of payment: canceled checks, credit-card or debit-card statements, or bank transfers. If you paid with cash, keep a dated receipt.
• Prescriptions or prescription labels when medications are claimed.
• Physician statements or letters for items that require medical necessity (e.g., special equipment, home improvements for medical needs).
• Mileage logs for travel to medical appointments: date, purpose, starting and ending odometer readings, and miles driven.
• Medical appliance receipts and detailed invoices for prosthetics, hearing aids, or durable medical equipment.
• Long-term care contracts, if applicable.

If you paid using an HSA or FSA, save records showing whether those amounts were used; expenses reimbursed from tax-advantaged accounts are not separately deductible.

How to document specific categories

• Hospital and doctor bills: Keep the itemized statement (not just the total bill). Itemized statements show dates of service, CPT/ICD codes and fees — useful if the IRS requests verification.

• Prescription drugs: Keep pharmacy receipts that list the drug name and date filled. Over-the-counter meds are rarely deductible unless prescribed.

• Mileage: Use a dedicated logbook or an app that records date, mileage, and purpose. If you use a smartphone app, export trip reports annually and keep them with your tax records.

• Home modifications and equipment: Get a physician’s letter stating the medical need for ramps, handrails, or other modifications. Preserve contractor invoices showing labor and materials.

• Cosmetic procedures: Generally not deductible unless required to treat a deformity from disease, trauma or congenital defects — in such cases, obtain a physician statement explaining the medical necessity.

Timing and payment rules

• Deduct in the year you paid the expense, not necessarily the year of service, unless you use the cash vs. accrual method specific to your accounting. For most individuals that means the tax year in which you actually paid the bill. (See IRS Pub 502.)

• Subtract reimbursements. If your insurance later reimburses you for an expense you deducted, you may need to amend your return or report the reimbursement if it produced a tax benefit in the earlier year.

• Do not claim expenses paid with pre-tax dollars (HSA, FSA, or employer health plan flex accounts); those were already tax-advantaged.

Organization systems that work

• Paper folder + annual binder: Keep a labeled folder for each year. At year-end, transfer scanned copies into an annual binder or folder.

• Digital scans: Scan receipts and EOBs into PDF files. Name files with date and short description (e.g., 2024-04-02StMarysER_Bill.pdf). Keep a running spreadsheet that lists date, provider, amount paid, reimbursed amount, and category.

• Use your bookkeeping software or a simple spreadsheet to summarize totals by category (hospital, dental, prescriptions, mileage). This summary saves time when filling Schedule A and helps spot missing documents.

• Backup: Maintain a cloud backup and a local copy. Keep at least three copies where possible (device, cloud, external drive).

How to handle lost or missing receipts

• Request duplicate bills from providers; most hospitals and physicians can reprint statements.
• Use bank or credit-card statements as supporting evidence if they show the provider name, date and amount.
• For small, unproven items, keep a written affidavit with dates and details — better than no documentation, but less persuasive than original receipts.

Common mistakes to avoid

• Double-dipping: Don’t deduct expenses you already claimed through an HSA or were reimbursed by insurance.
• Incomplete mileage logs: IRS expects trip purpose and odometer readings or a contemporaneous log; vague notes like “medical trips” are weaker evidence.
• Counting non-eligible items: Cosmetic procedures, general wellness costs, and over-the-counter meds without a prescription typically aren’t deductible (see IRS Pub 502).
• Missing year of payment: Claiming an expense in the wrong tax year can trigger adjustments and interest.

Examples and practical scenarios

Example 1 — Bunching: If you’re close to the 7.5% AGI threshold in two consecutive years, consider timing elective-but-necessary treatments or prepaying deductible medical expenses into a single year to exceed the threshold and claim the larger total. See our guide on how to bunch medical expenses to itemize for details: “How to Bunch Medical Expenses to Itemize” (https://finhelp.io/glossary/how-to-bunch-medical-expenses-to-itemize/).

Example 2 — Mileage documentation: A client tracked every medical trip with an app and kept exported CSVs tied to scanned EOBs; when audited, the log plus EOBs satisfied the examiner and the deduction stood.

Example 3 — Large equipment: For durable medical equipment (DME) a physician’s letter explaining medical necessity was the difference between acceptance and denial when the insurer didn’t provide full documentation.

Audit readiness: what an IRS examiner will ask for

• Receipts and itemized statements showing dates and amounts.
• Proof of payment (canceled check, bank statement, credit card receipt).
• Insurance EOBs showing what portion was paid by insurer.
• Physician statements for special or unusual items.
• Mileage logs with dates and purposes.

Keep records for at least three years after filing your return — that’s the general IRS period for audits — and longer if you report large missing income items (see IRS recordkeeping guidance).

Additional considerations

• State taxes: State rules may differ. Keep documentation in case you need to claim similar deductions on your state return.
• Medical debt paid via a loan or credit card: You may deduct payments made in the year the expenses were paid even if you paid the loan later — what matters is when you paid the provider. If you used credit, the date charged to the card is typically the date of payment.

Helpful resources and internal guides

• IRS Publication 502, Medical and Dental Expenses (https://www.irs.gov/publications/p502) — official guidance on qualifying expenses and documentation. [IRS Pub 502]
• Our FinHelp guides: “Deductible Medical Expenses: Limits and Strategies” (https://finhelp.io/glossary/deductible-medical-expenses-limits-and-strategies/) and “How to Bunch Medical Expenses to Itemize” (https://finhelp.io/glossary/how-to-bunch-medical-expenses-to-itemize/) provide complementary strategies for maximizing deductions. Also see “Mileage for Medical Appointments Deduction” for tracking vehicle expenses (https://finhelp.io/glossary/mileage-for-medical-appointments-deduction/).

Final checklist before filing

• Gather itemized bills and EOBs for the year.
• Reconcile each provider bill to proof of payment.
• Confirm amounts weren’t reimbursed or paid with pre-tax funds.
• Total eligible expenses and compare against 7.5% of AGI.
• Attach any required documentation if you are filing electronically when prompted, and keep all records for at least three years.

Professional disclaimer: This article is educational and does not replace personalized tax advice. For advice based on your specific circumstances, consult a certified tax professional or CPA. IRS rules change; verify details using the cited IRS publications before filing.

References

• IRS Publication 502: Medical and Dental Expenses. https://www.irs.gov/publications/p502
• IRS Recordkeeping guidance. https://www.irs.gov/individuals/how-long-should-i-keep-records