A flexible spending arrangement (FSA), or Flexible Spending Account, as they are commonly called, is one of a number of tax-advantaged financial accounts that can be set up through a cafeteria plan of an employer in the United States. An FSA allows an employee to set aside a portion of his or her earnings to pay for qualified expenses as established in the cafeteria plan, most commonly for medical expenses but often for dependent care or other expenses. Money deducted from an employee’s pay into an FSA is not subject to payroll taxes, resulting in a substantial payroll tax savings. – Wikipedia

We’ve had a flex account for about six years now. It makes sense for us since we never spend enough on medical bills to make the write off on our taxes, but we come pretty close. The flex account allows me to lower my take home taxable pay and put that money to good use paying for medication.

Flexible spending accounts are a use-it-or-lose-it endeavor in record keeping. If you don’t submit receipts by the yearly deadline, then that money is lost. I know of some people who just accumulate records throughout the year and submit them at the end, but I submit receipts every month. I think it’s a good habit to stay on top of it in case there is a dispute or something.

We get all of our medication through Walgreens, which has great online support. At the end of each month, I just print out a record of Jenny’s medications and send it off to the flex account folks and they reimburse me by direct deposit. For office visits or the occasional hospital stay, I just submit the paperwork that I receive from my insurance company.

If you are not already involved in a flexible spending program, I would certainly recommend you check into one. It’s made a huge difference for us. Living with lupus is a long term battle and every bit of help counts.

Sandy Botkin, CPA, CEO of the Tax Reduction Institute and author of Lower Your Taxes – Big Time! 2007-2008 Edition (Lower Your Taxes Big Time) has this to say about the requirements for writing off your home improvements:

…you must make the improvement to alleviate or address a specific medical condition. Being generally overweight won’t work, but obesity meets the medical criteria. Aching joints won’t get you as far as an official case of arthritis.

And only the treatment counts, so if your physician prescribes a filter to eliminate pollen in your home, but you buy an entire central air-conditioning system, only that filter is deductible.

“The IRS is most likely to challenge big expenses like elevators, outdoor decks and swimming pools — improvements that also could be done for nonmedical reasons,” says Estill. “It’s like when the IRS audits a business. They’re not after advertising and telephone bills. They look at meals, entertainment, travel — things that have a lot of fun associated with them.”

That’s not to say swimming pools are an automatic audit flag, but writing off a $20,000 pool on a $40,000 income might attract unwelcome attention. So if you intend to deduct, cross all the t’s on the paperwork.

Second, make sure you secure a note from the doctor stating that water therapy is critical to your treatment or recovery, not simply that you need to get exercise, Estill says.

“The more long-term the illness or disability, the more likely the IRS will permit it,” he says. “If you say, ‘I put in a swimming pool because I have a three-month rehabilitation program after surgery,’ good luck. I won’t make you any guarantees if I represent you in that one.”

Third, keep the reins on the expense sheet. Botkin shakes his head at the couple who ordered European tiles to match their home’s decor, went whole hog on the surrounding deck, splurged on automation and ran up a $195,000 bill.

“The tax court only allowed the reasonable cost of the pool — end of story,” he says.

If anyone has had experience with writing off a medically necessary home improvement, I would appreciate