The Greatest Wealth is Health

Embracing Summer Activities & Navigating Wellness: Tax Strategies from a Portland Tax Consultant

As summer winds down, many of us look back on the sunny days filled with outdoor adventures. Whether it’s hiking the trails in Forest Park, biking through Portland’s unique neighborhoods, or playing pickleball at a local court, the summer season offers endless opportunities to stay active and healthy. Natural sunlight and fresh air encourage us to move more, and help reduce the time we spend under blue-rich LED and fluorescent lights, which have been linked to health issues like obesity, diabetes, and heart disease.

But as we transition into fall, with shorter days and the rainy Pacific Northwest weather approaching, maintaining these healthy habits can become challenging. This shift in lifestyle makes it a great time to not only focus on physical wellness but also examine how the tax code plays into our overall health.

The Tax Code’s Impact on Health and Wellness

Interestingly, the U.S. tax system plays a significant role in supporting our health. In fiscal year 2022 alone, the federal government missed out on $187 billion in tax revenue by excluding employer-provided health insurance from taxation. Additionally, premium tax credits for healthcare cost another $76 billion, and contributions to Health Savings Accounts (HSAs) added up to $11 billion in lost revenue. On top of that, individual taxpayers saved another $10 billion by itemizing medical deductions on their tax returns.

Clearly, Uncle Sam is invested in keeping Americans healthy. But here’s the odd part—while medical expenses exceeding 7.5% of your adjusted gross income can be deducted under Section 213 of the tax code, wellness-related expenses are not eligible for the same treatment. So, while you can deduct the cost of medical care to treat illness, you can’t deduct expenses that might help you prevent illness, like gym memberships or other wellness-related costs. This inconsistency raises an important question: shouldn’t we incentivize the expenses that help us stay healthy in the first place?

Challenging the Healthcare Pricing Matrix

Leigh Osofsky, a professor at the University of North Carolina School of Law, addresses this very inconsistency in a soon-to-be-published paper for the Georgia Law Review. Osofsky argues that the tax code’s outdated definition of “medical care” fails to account for the modern understanding of wellness. Decades ago, when this definition was established, wellness was not seen as a critical part of medical care as it is today.

Osofsky suggests that wellness expenses—things like preventive care, fitness programs, and health-focused technologies—are indeed part of overall healthcare. These expenditures should qualify as medical expenses because they can help prevent the far greater costs of treating serious illnesses down the road.

Proposed Solutions for Wellness and the Tax Code

Osofsky proposes three possible solutions to fix the tax code’s inconsistencies:

1. Expand medical subsidies to cover more wellness-related expenses, making it easier for taxpayers to prevent disease.
2. Reduce existing subsidies to limit them only to catastrophic and compulsory medical expenses.
3. Offer a progressive credit for wellness expenses, which would allow taxpayers of all income levels to benefit from preventive care without overburdening the federal budget.

The third option—a progressive credit for wellness expenses—seems the most balanced, as it could ensure that higher-income taxpayers don’t disproportionately benefit from tax breaks for high-end wellness expenses like luxury spas or biohacking treatments.

The Debate: Where Do We Draw the Line?

As with any proposed tax change, the devil is in the details. While most people would agree that a gym membership is a reasonable wellness expense, where do we draw the line? Should expensive wearables like Fitbits or Apple Watches be included? What about more exotic wellness trends like cryotherapy or biohacking for anti-aging?

And then there’s the question of fairness. Would such a tax break primarily benefit wealthier individuals who can afford expensive wellness retreats or personalized health plans? Osofsky’s idea of a progressive credit aims to prevent billionaires from shifting the cost of their wellness regimens onto the general public. However, passing this type of legislation in today’s divided Congress, especially with a $35 trillion national debt, would require significant political will.

Navigating Current Tax Opportunities

While we wait for potential changes to the tax code, there are still ways to take advantage of the current opportunities available for improving your financial and physical health. Health Savings Accounts (HSAs) and Medical Reimbursement Plans (MRPs) offer valuable tax breaks for qualified medical expenses, helping you manage costs while staying healthy.

If you’re in the Portland area and looking for guidance on maximizing your deductions and protecting your financial health, reach out to Anvil Tax Inc. Daveed Tuck, a trusted Portland tax consultant and former IRS auditor, specializes in personalized tax strategies that can help you make the most of your wellness-related expenses under current tax laws. Schedule a right-fit call today by visiting www.anviltax.com.