Apple’s AAPL, -2.66% latest Apple Watch, the Series 4, is packed with health-monitoring features that were approved by the U.S. Food and Drug Administration. Wearers can take electrocardiograms on their wrists and even receive warnings if their heartbeat becomes irregular. So does the Apple Watch counts as a medical device for tax purposes?
One user on Reddit wanted to know if you can buy the Apple Watch with money from a Health Savings Account, a savings account that lets taxpayers set money aside for qualified medical expenses, pre-tax. That, after all, could make the cost easier to swallow. The Series 4 with cellular connectivity starts at $499.
“From my understanding of HSAs, money can be withdrawn as tax deductible if purchasing a medical device,” the Reddit user wrote. “The new Apple Watch Series 4 was approved by the FDA as an electrocardiogram or ECG. Does this mean someone can purchase the new Apple Watch and those funds count as a medical expense?” The answer is no. Or, not yet.
“Medical expenses eligible to be paid for from an HSA are based on the Internal Revenue Service-approved medical deduction list,” said Lisa Greene-Lewis, a certified public accountant and tax expert at Intuit Inc. INTU, -0.91% But the IRS didn’t update that list after Apple unveiled the new watch last week. (The agency did not immediately respond to request for comment.)
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The IRS has a very broad definition of “medical expenses.” They’re defined as “the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body.” All medical tax deductions must be prescribed by a licensed medical physician and be itemized on Schedule A of your annual tax return.
But the Apple Watch defies easy categorization. It has “all sorts of features,” not limited to the heart-monitoring, said Mark Luscombe, principal analyst at Wolters Kluwer’s tax and accounting practice in Chicago, Ill. “Someone could try to get a doctor to say they’re prescribing an Apple Watch,” he said. “If there’s ever an audit, you could have some problems.”
That could change, Luscombe added. After all, weight-watching programs and smoking cessation programs are tax deductible. “You can include in medical expenses amounts you pay for a program to stop smoking,” according to the IRS site. However, drugs that don’t require a prescription that are designed to help you stop smoking, such as nicotine gum or patches, are excluded.
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