Tax deductions for gluten free food
The Celiac Tax Deduction; What’s New?
By Howard J. Kass, CPA
You can reprint this article but you must include it in its entirety including this statement and attribute it to Howard Kass with full contact information and a link to his website, www.zinnerco.com/business/?p=12 . For more information, contact: Howard J. Kass, CPA, Tax Partner, Zinner & Co. LLP, 216-831-0733 begin_of_the_skype_highlighting 216-831-0733 end_of_the_skype_highlighting, or email email@example.com. Visit www.zinnerco.com for more information on tax deductions for celiac and the gluten-free diet as well as other tax information.*****************
When I first wrote about the tax treatments available to diagnosed Celiacs for the additional costs they incur by following a Gluten-Free diet fifteen years ago, the law was pretty well established and there were no significant changes in the works. The advent of Section 125 plans shortly thereafter, also known as Flexible Spending Arrangements (FSA) added a new twist to the quest for tax deductions. With all the hoopla that has taken place in the last year, both with health care reform and tax legislation, what has changed?
Overview of the Medical Expense Deduction
Before I talk about what has changed, it is important to review the basics of the medical expense deduction and how it relates to the additional costs of following a Gluten-Free diet. Section 213 of the Internal Revenue Code (IRC) provides an itemized deduction for qualified medical expenses incurred. Under present law, medical expenses are deductible to the extent that they exceed 7.5% of Adjusted Gross Income (AGI). AGI is the number shown on the last line of the first page of form 1040.
So, for an individual who has an AGI of $100,000, the “floor” they have to exceed is $7,500 before any of their medical expenses begin to be deductible. If one is in relatively good health and if their employer pays for their health insurance, it is unlikely that one would have enough qualified medical expenses to take the deduction.
The Gluten-Free Component
Now, let’s bring the cost of Gluten-Free food into the equation. Based on a variety of Revenue Rulings and court cases, sufficient precedent has been established for one who has been diagnosed with Celiac Disease (or any other medical condition requiring adherence to a Gluten-Free diet) to claim a medical deduction for the additional costs of following a Gluten-Free diet. I will cite the applicable law at the end of this article.
So, how does one calculate the cost of following the Gluten-Free diet and, equally important, how does one document those costs? Calculating the cost of following the diet is a matter of tracking the costs of purchasing food items that are necessary to the diet and subtracting the costs of comparable non-Gluten-Free versions of the same food. So, for example, if a loaf of Gluten-Free bread costs you $6.00 and a comparable loaf of “regular” bread costs $2.00, the deductible cost of the Gluten-Free bread would be $4.00.
What about those items for which there is no counterpart in the non-Gluten-Free community? One example of this would be Xanthan Gum. In that event, the total cost of the product would be deductible.
It’s easy to discuss this process on an item by item basis, but how does one accumulate this data and perform the calculations for a year? First, it is important to collect and retain detailed receipts of every purchase you wish to deduct. You would then need to create a spreadsheet on which to track this data for the year. While I recommend the use of an electronic spreadsheet, pencil and paper will also serve the purpose. If cost is what stands in your way of using a product like Microsoft Excel, check out OpenOffice.org. It is a free Microsoft compatible office suite that should serve your purposes quite well. I would strongly encourage you to collect this data and update your spreadsheet after each shopping trip.
Where do Flexible Spending Arrangements Come In?
As mentioned earlier, depending on the amount of your AGI, you may still not have accumulated enough in deductible medical expenses to be able to take the deduction. However, under current law, if you participate in a Section 125 plan with an FSA and, if your FSA plan allows it, you may be able to reimburse yourself for the additional costs of following a Gluten-Free diet. If you can do that, you have effectively achieved an “above the line” deduction for following the Gluten-Free diet. Similarly, since Health Savings Accounts (HSAs) follow the same rules as FSAs, that may also provide you with an opportunity to get your medical deductions, including the additional costs of observing a Gluten-free diet above the line. For those who are unfamiliar with HSAs, they are only available to those who use them in conjunction with a high-deductible health insurance plan. See your tax advisor for more information or e-mail me with your questions.
Getting back to the discussion on FSAs, however, before you rejoice, there are a couple of caveats to be aware of. First, your 125 plan has to permit this reimbursement. You will need to check with your plan administrator and, perhaps, read the plan document yourself. Be prepared to educate the plan administrator on this issue. Also, after you read the effect that Health Care Reform is going to have on health care expenses in FSAs, you may determine that it isn’t worth the effort. More on that later.
So, What’s Changed?
Two significant changes that will affect one’s ability to deduct the costs of following a Gluten-Free diet are slated to occur in the name of Health Care Reform.
First, the floor for deducting medical expenses is scheduled to increase from 7.5% of AGI to 10% beginning in 2013. If you or your spouse will be age 65 or over at that time, the increase to 10% will take place in 2017. Going back to our example from before, if one has an AGI of $100,000, instead of medical expenses having to exceed a floor of $7,500 to be deductible, they would have to exceed $10,000. This increase would obviously make one think twice about accumulating all the data described earlier!
Another change slated to take place in 2013 would affect the strategy of paying for the costs of following a Gluten-Free diet from an FSA. Beginning in 2013, the maximum amount that could be contributed to a health FSA will be limited to $2,500. There is currently no limit! This cap will reduce the value of paying the costs of following a Gluten-Free diet because doing so will limit the amount available to pay for other health related expenses. Since HSAs are less restrictive, there may be an opportunity here to improve your deduction options.
So, What’s the Bottom Line?
Until the end of 2012, as the law currently stands, it is business as usual in terms of how (if at all) you have been deducting your costs of following a Gluten-Free diet. You must have a diagnosis that requires you to follow a Gluten-Free diet and your costs are potentially deductible as an itemized deduction to the extent they exceed 7.5% of your AGI. If you participate in an FSA, you may be able to pay those expenses through your plan. Check with your plan administrator.
Beginning in 2013, however, the landscape changes. You will have a higher hurdle to overcome to take the itemized deduction and you will be subject to new restrictions in the amounts that can be paid through an FSA. That’s all true as of this writing. As you must certainly be aware, Health Care is a very volatile issue in Washington right now and there are many who believe that it will look very different than it does right now, by the time 2013 rolls around. Congress isn’t done tinkering yet – stay tuned.
Cites to the Law
For those who want to learn more, here are some of the more relevant cites to the tax law:
* §213 of the Internal Revenue Code
* Rev Rul 55-261
* Rev Rul 76-80
* Cohen v. Commissioner, 38 TC 387
* Randolph v. Commissioner, 67 TC 481
* Fleming, TC MEMO 1980 583
* Van Kelb, TC MEMO 1978 366
* §9013(a)-(b) of the Patient Protection and Affordable Care Act, P.L. 111-148, 3/23/2010
* §125(i)(1) of the Internal Revenue Code as amended by 2010 Health Care Act §10902(a)
* IRS information letter 2011-0035 (3/25/2011)
For more information, contact: Howard J. Kass, CPA, Tax Partner, Zinner & Co. LLP, 216-831-0733 begin_of_the_skype_highlighting 216-831-0733 end_of_the_skype_highlightingor email firstname.lastname@example.org. Visit www.zinnerco.com for more information on tax deductions for celiac and the gluten-free diet as well as other tax information.
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For more information, contact: Howard J. Kass, CPA, Tax Partner, Zinner & Co. LLP, 216-831-0733 begin_of_the_skype_highlighting 216-831-0733 end_of_the_skype_highlighting, or email email@example.com. Visit www.zinnerco.com for more information on tax deductions for celiac and the gluten-free diet as well as other tax information.
Update on Celiac tax deduction February, 2012 below
A PRACTICAL APPROACH TO TAKING THE GLUTEN-FREE TAX DEDUCTION¨
By: Howard J. Kass, CPA
I have been writing about taxpayers' ability to deduct the excess costs of following a gluten-free diet for almost 20 years, including two articles this year, which can be found at
www.zinnerco.com (search the website for "gluten free¨). Since the law surrounding one's
ability to deduct these costs has been well established, most recently in the IRS's information letter 2011-0035, this article will not discuss the applicable tax law but, rather, will focus on the practical aspects of taking the deduction.
The first step in taking the deduction is to determine your eligibility to take it. To be eligible,
you must have a documented reason to require the observance of a gluten free diet. Generally, the best documentation is a physician's diagnosis of a medical condition that must be treated by following a gluten-free diet. While a diagnosis of Celiac Disease would certainly qualify you to take the deduction, there are other conditions that can also be treated by following a gluten-free diet. A diagnosis of any of those conditions, along with a physician's prescription to follow a gluten-free diet will provide sufficient documentation of eligibility.
Before delving into the step-by-step process of taking the deduction, it may be useful to outline the overall approach. The process will look something like this:
„X Develop the overall system for tracking excess costs
o Create a database of non-gluten-free foods, with costs,
o Design a system for collecting and storing the receipts from shopping trips in
which one purchases gluten-free foods,
o Implement a system for capturing the required data from those receipts to track
the deductible portion of those costs.
„X Maintain the system to establish the amount of deductible costs
o After each shopping trip, collect the receipt,
o Record the required data from that receipt,
o Store the receipt in an easily retrievable manner
Now that we see what the overall process looks like, let¡¦s examine each of the above steps in
detail and create a practical system one may follow.
Develop the Overall System for Tracking Excess Costs
o Create a Database of Non-Gluten-Free Foods, With Costs
To know how much more you are spending on gluten-free food, you must know two
things; the cost of the gluten-free food and the cost of the non-gluten-free versions of the
same food. The fist step, then, is to develop a database of the non-gluten-free versions of
the foods you normally purchase. Sounds easy, but how do you actually do it?
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The quickest way to begin the process is to find a ready-made database of food prices
online. While it can take some time to find one, they do exist. One example is at
http://comparegroceryprices.org/. Something to keep in mind is that this database, in
particular, only compares prices at six national chains. While most readers will be able to
find at least one of these chains in their location, some will not. Local price variances
may occur that are not accounted for in a database such as this, nor will it compare prices
at local non-chain stores. Finally, one has no way of knowing how frequently a database
such as this is updated, so prices may be out of date without one knowing it.
The more tedious, but probably more accurate (and favorable) method would be to create
your own database. This would entail creating a comprehensive list of the mainstream
versions of the foods you purchase in gluten-free form, and tracking the prices of those
items at your local stores.
It is easy to see why this method would be more accurate, but why would undertaking
this task be more favorable? Building your own database gives you the opportunity to
comparison shop locally and develop a database that includes the lowest available local
prices for the mainstream products you are comparing. The lower the price of the
mainstream products that are being used, the greater the cost differential as well as the
potential tax deduction.
o Design a System for Collecting and Storing Receipts
Now that the database is built, it¡¦s time to go shopping. Before leaving, though, ask
yourself what you are going to do with your grocery receipt when you return home?
Other than recording certain information contained in that receipt, which I¡¦ll get to in a
minute, you need a system for storing that receipt (along with all the others you will
collect over a year) in a way that will allow you to easily retrieve it if you need to support
your deduction in a tax examination. We¡¦re not talking a shoe box with loose receipts
here, but, rather, a simple but organized system for collecting and maintaining these
There are many record-keeping systems available from a wide variety of sources, but one
really doesn¡¦t need anything elaborate. An easy system might be to get twelve business sized envelopes, label each with a different month of the year and collect them in a small
box, labeled, "GF Food Receipts". You can even use a shoe box for this, if you wish as
long as you use the envelopes, too. After each shopping trip, you would put the receipt in
the envelope that corresponds with the month in which the shopping trip occurred, and
keep all the envelopes in the box. No single envelope will hold an excessive number of
receipts so that if necessary, a particular receipt can be easily retrieved.
At the end of a year, put the twelve envelopes in one larger envelope, labeled, ¡§GF Food
Receipts "Tax Year 20XX". Then label twelve more envelopes for the next year and put
them in the box.
Now let's backtrack and talk about how to collect and track the data from those receipts
necessary to claim the deduction.
o Implement a System for Capturing the Required Data from Those Receipts
The receipts, by themselves, don't do much good if there is no system in place to record
and track the required information necessary to determine the amount of excess costs one
may deduct. The system I am about to illustrate is fairly simple and straightforward, and,
if maintained regularly, will not become a cumbersome part of your life that you come to
dread. So, what does the system look like?
Essentially, we are going to create a spreadsheet that lists each gluten-free item
purchased on each shopping trip you make during the year and compares its cost to the
cost of a similar, mainstream product. Over the course of the year, your list will grow as
you purchase more gluten-free food, and, at the end of the year, you will total up each of
the columns that contain dollar amounts to arrive at the amount of your deduction. A
simple example follows:
Store: Whole Foods
Food Item: Whole Foods Bread
GF Price: $6.00
Non-GF Price: $1.89
Total Difference: $8.22
(Quantity x Difference)
Gorilla Crunch Cereal $4.00 $2.50 $1.50 1 $1.50
EnerG Bread $6.25 $1.89 $4.36 1 $4.36
12/31/2012 Total 14.08
Note, the prices shown in this example are completely fabricated and bear no relationship
From this example, you can see that the process is not that difficult to undertake. Now,
while you can certainly track your costs with pencil and paper, I would highly
recommend using an electronic spreadsheet, such as Microsoft Excel.
If you have a computer, but don't have Microsoft Excel or Office, don't despair. There are two
very good open source (free) programs that offer almost as much functionality as Office,
including a spreadsheet that looks very much like Excel and will even read and write Excel files.
They are called OpenOffice and Libre Office. In fact, Libre Office was written by many of the
same people who developed OpenOffice.
Where can you find them? OpenOffice can be found at http://www.openoffice.org/, and Libre
Office can be found at http://www.libreoffice.org/download. It is well beyond the scope of this article to review the two programs but, having used OpenOffice myself, I can tell you that it will handle this task quite easily.
Maintain the System to Establish the Amount of Deductible Costs
Now that the system has been created and is ready to use, let's discuss the process of maintaining it in as pain-free a manner as possible.
o After Each Shopping Trip, Collect the Receipt
Are you the type of person who doesn't save receipts? Take heart that you're not alone; but, if you want to establish a system that allows you to deduct the additional costs of
following a gluten-free diet in a way that can be defended in an IRS audit, that is a habit
that must stop immediately! For this system to be successful, you must diligently collect
and save your receipts in an organized manner. I highly recommend the method I
o Record the Required Data from That Receipt
I strongly urge you to enter the information from your shopping receipt in the spreadsheet
described above as soon as you return home from the store. There are two reasons for
First, it will minimize the number of times you have to handle the receipt. If you enter
the information from that receipt immediately and put it into the envelope, you are done
with that receipt (forever if you are never audited).
Second, this spreadsheet is much easier to maintain on an enter-as-you-go basis than if
you save it up for weeks, months, or, perish the thought, the whole year. In fact, I can
guarantee that if you save your receipts for the year before entering them, you will give
up in frustration. If that is your plan, please don¡¦t even start. You will regret it.
Store the Receipt in an Easily Retrievable Manner
One of the inevitable facts of one's tax life is the potential for a tax audit. I have
represented many clients in tax audits over the years, and one constant that you can take
to the bank is that those taxpayers who have well organized, complete, supporting
documentation for the deductions claimed in their tax returns are far more likely to be
successful in preserving those deductions as an outcome of that audit than those who do
not. Therefore, I implore you to use the system described earlier in this article, or one
similar to it, to store and organize your grocery receipts so you may preserve your tax
deduction for observing a gluten-free diet.
A final word. Before you begin the task of creating this system or maintaining it, please make
certain that your particular tax circumstances will allow you to enjoy the benefit of taking this
deduction. I strongly urge you to read the articles mentioned in the first paragraph of this article as well as to consult with your own tax advisor. Consulting your tax advisor is something you should do before making any decision that may affect how you prepare or file your tax return. If you follow that advice alone, this will have been a worthwhile use of your time.
Howard J. Kass is the Tax Partner at Zinner & Co. LLP, a full-service
accounting, tax and wealth-management consulting firm located in
Cleveland, Ohio. Howard has over 30 years experience and has cultivated
particular expertise in individual and business income taxes, tax aspects of
real estate investment, gift and estate taxes and tax exempt organizations.
Howard applies his extensive knowledge and experience to a diverse client
base of individuals and companies including closely held businesses in a
variety of industries and ownership structures such as C Corporations, S
Corporations, Partnerships, and LLCs. Industries served include real estate,
manufacturing, retail establishments, insurance agencies, distributors and
service companies among others.
Howard may be contacted at firstname.lastname@example.org with any questions.
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The following websites have the most up to date, accurate and helpful information concerning Celiac and the gluten-free diet.
American Celiac Disease
Phone: 703–622–3331 begin_of_the_skype_highlighting 703–622–3331 end_of_the_skype_highlighting
American Celiac Society
Phone: 504–737–3293 begin_of_the_skype_highlighting 504–737–3293 end_of_the_skype_highlighting
Celiac Disease Foundation
Phone: 818–990–2354 begin_of_the_skype_highlighting 818–990–2354 end_of_the_skype_highlighting
Celiac Sprue Association/USA Inc.
P.O. Box 31700
Omaha, NE 68131–0700
Phone: 1–877–CSA–4CSA begin_of_the_skype_highlighting 1–877–CSA–4CSA end_of_the_skype_highlighting 1-877-272-4272 - toll free)
Gluten Intolerance Group of
Phone: 253–833–6655 begin_of_the_skype_highlighting 253–833–6655 end_of_the_skype_highlighting
National Foundation for Celiac Awareness
Ambler, PA 19002
Phone: 215–325–1306 begin_of_the_skype_highlighting 215–325–1306 end_of_the_skype_highlighting
North American Society for Pediatric Gastroenterology, Hepatology and Nutrition Children’s Digestive Health and Nutrition Foundation
P.O. Box 6
Flourtown, PA 19031
Phone: 215–233–0808 begin_of_the_skype_highlighting 215–233–0808 end_of_the_skype_highlighting
Email: email@example.com Email: firstname.lastname@example.org
University Based Information
Government Based Information
To meet the need for comprehensive and current information about celiac disease, the National Digestive Diseases Information Clearinghouse (NDDIC), a service of the National Institute of Diabetes and Digestive and Kidney Diseases (NIDDK), launched the Celiac Disease Awareness Campaign. The Awareness Campaign is the result of the combined ideas and efforts of the professional and voluntary organizations that focus on celiac disease, along with the NIDDK, the National Institutes of Health, and the Centers for Disease Control and Prevention.
Celiac Disease Awareness Campaign
National Digestive Diseases Information Clearinghouse
Phone: 1–800–891–5389 begin_of_the_skype_highlighting 1–800–891–5389 end_of_the_skype_highlighting
North American Society for Pediatric Gastroenterology, Hepatology, and Nutrition
Gluten and Medication
A great source of information for gluten free drugs. This site is maintained by clinical pharmacist Steve Plogsted from
Ask the expert.
Howard J. Kass, CPA, tax partner at Zinner & Co will be on hand at the EXPO to answer celiac related tax questions.
Ask questions, taste and buy gluten-free products directly from the manufacturers. Discover what good health tastes like!
Visit http://www.clevelandgfexpo.org/ to pre-purchase your tickets for the Sunday, September 9, 2012 Gluten-free Lifestyle EXPO to learn more about celiac and the gluten-free diet and more. Tell manufacturers that you want to be able to purchase their products locally.
Sample and purchase gluten-free products