Thursday, January 24, 2013

The Gluten-Free Tax Write-Off, and Why It's Flawed


If Christmas was the most wonderful time of the year, then we've definitely moved into the second most wonderful time of the year: tax season, that glorious period between January 1 and April 15 when we all, to greater and lesser degrees, become accountants.

Inevitably, this brings up a new round of blogs and articles highlighting the gluten-free tax write-off. Here's a basic primer on how it works: a) you must qualify, and b) you must keep detailed records and receipts.

Qualification

In order to qualify for a gluten-free tax write-off, you must have an official medical diagnosis from your doctor of celiac disease or another recognized condition that warrants strict lifelong adherence to a gluten-free diet. And you must also have a formal prescription that specifies a gluten-free diet as your course of treatment.

Accounting

The premise of the tax write-off is that gluten-free foods cost more than "regular" foods, and therefore you're entitled to write off that portion of your expenses which are in excess of what you might normally expect to spend on regular versions of the same foods. For example, if a regular version of the food costs $3, and the gluten-free version costs $5, you may write off $2.

But it's not quite that simple. This gluten-free "premium" is aggregated together with other qualifying medical expenses, such as medical co-pays, prescription meds, etc. The lump sum total in excess of 7.5% of your gross income is the portion you actually get to write off on your taxes.

And of course, you need to keep detailed, accurate records: grocery store receipts, plus the gluten-ous benchmarks against which you're calculating the GF premium.

The Case for the Write-Off

If you were still eating gluten and getting sick, you'd be writing off all sorts of medical expenses—more co-pays, medication, tests, etc. (assuming the total of these expenses exceeded 7.5% of your income). On a gluten-free diet, you're in theory avoiding incurring all those costs on the medical system, and so shouldn't you be able to write off your marginal cost increases for food, which replace the standard medical expenses?

And as researchers refine other treatment protocols (pills, enzyme therapy, vaccines, and who knows what else), those future treatments will be qualifying medical expenses. As another (and to date, the only known effective) option, shouldn't diet be a qualifying medical expense as well?

Other countries, such as Italy, offer stipend to offset cost of maintaining GF diet. Shouldn't U.S. GF folks have some sort of financial relief as well?

Problems With the System

But there are fundamental problems with the system, and I'm not convinced that those of us who are gluten-free for medical reasons should be entitled to write off our food expenses. I'll explain.

Room for abuse
First, like many systems, the fairly open-ended nature of the write-off leaves plenty of room open for abuse. For example, I haven't seen any tax guidelines specifying that you must benchmark like with like. In theory, you could purchase an expensive GF version of a product, and benchmark it against a cheap, budget, brand x "standard" version of the food, thus maximizing the price difference (and hence, your tax write-off), even though that constitutes something of an apples to oranges comparison.

Imperfect accounting
Second, the accounting system is imperfect. For example, if you buy Pamela's chocolate chunk cookies and benchmark them against Chips Ahoy chocolate chip cookies, both from Walmart (for the sake of this illustration), you're looking at a base price difference of $3.96 vs. $2.50. But Pamela's package includes 207 grams of cookies (9 cookies x 23 grams per cookie), but the Chips Ahoy package includes 363 grams of cookies (11 servings x 33 grams per serving). Should you scale the prices to common portion sizes? Fundamentally, you're paying more but getting less with Pamela's, so a straight $3.96 vs. $2.50 doesn't fully capture the increased cost of the gluten-free version.

And what about naturally gluten-free specialty products such as Mary's Gone Crackers, which are enjoyed equally by gluten-eating and gluten-free folks alike. Should you be able to compare Mary's Gone Crackers to Triscuits or some other wheat-based cracker, and write off the difference, even though a product such as Mary's isn't first and foremost a specialty food meant to meet the dietary needs of the gluten-free community?

Myriad factors affect grocery bills
Further, the price differences between gluten-free and gluten-ous foods is just one of many, many food purchasing decisions we make that affect price and our weekly grocery bill. What about the family (like us) who chooses to spend many times more on real, pure maple syrup than to buy the imitation fake stuff made with corn syrup, caramel coloring, imitation flavors, and artificial colors, because we believe the real thing to be better and healthier for us? Or the person who opts for organic produce, or pastured meat and eggs, or sustainably harvested seafood? All of these decisions will raise your grocery bill, and all of these decisions potentially come with real and tangible positive health and environmental impacts. I don't think anyone would strenuously argue that we write-off the added costs of these food choices. What makes gluten-free different?

I know what you might say: we HAVE to do gluten-free, it's not a choice. True, but that brings me to my final point.

Subsidizing junk food?
Whether you can eat gluten or you're gluten-free, the core of a healthy diet comes down to the same foods—vegetables, fruit, nuts, seeds, whole gluten-free grains (such as rice and quinoa), whole meats and fish, eggs, and if you can, dairy. Their costs are the same, whether you're gluten-free or not.

Which means that the gluten-free foods you're writing off on your taxes are very likely of the processed, refined, and/or junk food variety: store-bought bread, pizza, cookies, crackers, cake, brownies, and other indulgences. While some of those foods could be part of a healthy, balanced diet, most of them are not; they are treats. Don't get me wrong—I love my baked gluten-free sweets as much as the next person. But should you be eligible to write off such foods on your taxes? I'm not so sure. In fact, I'd wager not.

Final thoughts

It's no secret that the food we eat is intimately connected to our health. Some of that food costs more than other food—that's just life, and there are myriad reasons why different foods cost what they do (ranging from dedicated GF facilities to deep agriculture subsidies that artificially deflate the cost of certain food commodities). On the one hand, only a fool leaves money on the table, and the availability of the GF tax write-off is an opportunity that many (diligent folks) can and do pursue. But I'd argue that we need to rethink the write-off. It has room for improvement, and we might even consider abolishing it entirely.

What do you think?

–Pete

P.S. For those who've asked for citations for the IRS gluten-free tax deduction, you can refer to the following sources:

Several of these sources also include references to the various IRS rulings and other guidance documents that support and outline the deduction.

19 comments:

Ellie said...

Thank you for this article. I was diagnosed with celiac disease about 8 years ago, and I had no idea there was a tax write off for GF items! This is great, although the detailing required is onerous. Welcome to our world, right? Moreover, it is distressing that it essentially requires a note from your doctor - more blending of our personal, medical business into governmental records. But I digress. Thanks for the info! Do you have a specific citation to the tax laws detailing the write off?

peterbronski said...

Ellie, I added links to four information sources at the bottom of the post.

Cheers,
Pete

Betsy said...

I have heard of this before, but never looked into it. We all only have gluten sensitivity and would not qualify. I am, however, going to forward your blog post to those I know who are actually diagnosed with celiac.

gfe--gluten free easily said...

Pete, I don't know that everyone reading is going to "get" the takeaway from your article as so many get excited about that tax write-off when they hear about it, but honestly, I don't see how anyone who can qualify for the write-off could be eating healthy or even decent food in any way. One would have to be eating processed gf food 24/7 it seems to me. As you have shared, that is just not a good idea. Now if we could get a tax write-off for whole and organic foods, that might be something. Even then, I really don't think I'd qualify and I maintain that eating healthy gf real food does not have to be that much more expensive than standard American gluten-full fare. Thanks for the post!

Shirley

Anonymous said...

I know you think the system is flawed but there are some of us who can't afford to eat GF (we have to, it's not just a diet for us) and pay bills and other expenses.
It must be nice to be able to afford GF foods and not have to worry about how you are going to afford the rest of your bills and expenses. So just because this doesn't work for you why take it away from those of us it could help?

Anonymous said...

I've been Celiac for 15 years and my daughter has been for 6 years and we have never qualified for the medical deductions, due to a great medical insurance policy... however, I lost my job and was out of work and had no insurance for a year. I kept track of everything, but I still won't get much of a deduction, in spite of a very low income... we just don't buy that much specialty food.
Just to let you know, you do not have to provide the note from your doctor unless requested by an auditor. You should place a copy of your diagnosis and "prescribed" gluten free diet in with your tax records each year, just in case.

Anonymous said...

YES WE SHOULD HAVE A TAX 'WRITE OFF' or STIPEND! Just because we (herein referring to Celiac patients) pay more for less (not in our control but GREATLY to our detriment) because almost all GF products are devoid of ANY nutrition, AGAIN not something we can avoid as well as to impede our health! Celiacs are constantly getting less for higher cost in every way! If there was a strait deduction or dollar amount I would take it, but is any of this something we have a way to deal with OTHER than the high cost and the lesser amounts we are offered? NO. Do diabetics of varying degree in health only get to write off a portion of their medicine due to lack of doing what 'the media' says they can to help themselves? NO. WHY should Celiacs be limited to any deductions when there are so MANY different ways to suffer with this and the ONLY way is diet even if long term or permanent damage has been done. The USA is one of the worst countries in the world to diagnose this disease and now we shouldn't get any help because big pharmaceuticals can't make money off us yet? We deserve the help we need!

Anonymous said...

P.S. Since when has tax law ever been fair or just or equal more less un-flawed?

pmrowley said...

Just a note, when I've looked into this, I've been told, "You WILL get audited if you take this write-off," by multiple tax lawyers.

Aleka Artemis Munroe said...

I've been deducting the additional cost of gluten free foods for 23 years. It is a pain in the neck not only getting the "regular" price but also calculating the package weight differences. I don't remember to keep every receipt, but I try. It is worth a few hours work to save an average of $750 a year in taxes. Udi's or Rudi's bread is not any better qualify than the average store brand is more than double the cost. Why shouldn't we take a deduction? All in all I thought this was a rather weak post, arguing both for and against, as well as wingeing about what other governments do. It is what we have. Until we have powerful lobbies, we aren't getting a change. If you are financially well off enough not to care about an extra $750 in deduction--don't take it.

peterbronski said...

Hi Shirley,

Thanks for adding your voice to the conversation! I know you've long been a proponent of the idea that eating gluten-free need not burn a hole in our wallets.

Cheers,
Pete

peterbronski said...

Hi Anonymous (1/26),

I have to eat gluten-free as well; it's not "just a diet" for me, either.

Be careful before you accuse someone—such as us—of having enough surplus income to "be able to afford GF foods and not have to worry about" other expenses. Our diet is focused on whole foods (fruits and veggies, nuts and seeds, meat, fish, eggs, etc.), the types of foods—as I note in the post—that cost the same whether you're gluten-free or not. We buy relatively few GF specialty foods. And like many American families, we have a budget.

Best,
Pete

peterbronski said...

Hi Anonymous (1/27),

Though I didn't go into that level of detail in the post, you're quite right—keep the doctor's note and other records on file in the event of an audit; you're not required to submit them with your tax return.

Your point about a relatively small deduction I think is typical. You'd have to buy a lot of GF specialty foods, and even then, only write off that amount in excess of 7.5% of your gross income.

Cheers,
Pete

peterbronski said...

Hi Anonymous (1/27 #2),

Like previous anonymous commenters, you raise a good and valid point that the gluten-free tax write-off may help people who could use the deduction to relieve financial burden and help to make economic ends meet.

I also like the fact that you bring up a stipend, a situation which is theoretically preferable to a tax write-off, since actual money in your pocket to offset cost (such as via a stipend) is worth more than that same dollar value written off your taxable income.

However, I strongly disagree with your complaint that "almost all GF products are devoid of any nutrition" and that this situation is unavoidable. If that's the case, then I'd suspect you're eating many of the wrong GF foods.

Best,
Pete

peterbronski said...

Hi PMRowley,

Thanks for sharing the info re: audits. There are, of course, many factors that influence the likelihood of an IRS audit, and this may be one of them. All the more reason to keep accurate and detailed records.

Cheers,
Pete

peterbronski said...

Hi Aleka,

Thanks for adding your experience writing off the cost of gluten-free foods. It's great to hear from someone who has done it for years and who can share that perspective.

I wasn't arguing both for and against the tax write-off. I began by listing some of the reasons in favor of it, and then offered my counter argument why I think the system is flawed. It's a valid (and quite appropriate) practice to benchmark against what others have done (such as other countries' approach to GF finances) to see what has worked and what hasn't. Europe—and Italy especially—are often seen as out in front of the US on celiac issues (as evidenced by their standard celiac screening of all citizens), so shouldn't we also look at how they approach the GF finance issue?

To say "it is what we have" and accept an imperfect solution—while better than nothing—to me isn't an excuse to accept that system without calling for potential reform.

Best,
Pete

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Anonymous said...

I have Hashimotos Disease and was dealing with severe GI issues before diagnosis. It was highly suspected that I am celiac although bloodtests were normal. I adhere strictly to celiac protocol and absolutely cannot tolerate gluten in any form or fashion. Why can other diagnosese not get the tax deduction...i.e. other autoimmune illnesses when gluten has been found to cause symptoms and exacerbate these illnesses too??? Hopefully this will change.

Anonymous said...

I am new to this, but the tax laws that I have looked at do not seem to specify celiac disease. It seems that any medical condition that is offset by eating a special diet would be allowable under the law (IRS publication 502). But I have asked my tax adviser, since I am not an expert. My question is why most people seem to be looking at this expense in an isolated situation. I agree that it would be difficult to come up with 7.5% or over on just grocery deductions. But for me, with a family of five (two of which are gluten sensitive) the deductions, though a headache to be sure, make sense completely. My grocery bill has increased quite a bit since I started shopping for gluten free items. And I am not talking about unhealthy and processed foods. To be sure I buy some of them, but compare the cost of whole wheat flour ($1.99/pound) to sorghum flour, tapioca starch, brown rice flour and xanthan gum. I need all those flours just to make a recipe in which I used to need just whole wheat flour. The cost differential is quite a lot. Or compare brown rice pasta to whole wheat pasta. It is double the price: same nutritional value, just double the price. So, yes, I do think it is worth it. Even when you eat healthy, GF healthy costs more.

Yes, there is certainly room for dishonesty. But there is in most tax laws. That is why our tax system is outdated. But that is a comment for another post!
Cheers,
A mother