Is a deposit for a future service considered an expense when paid or when the service is rendered and paid in full?

[Snoopy70]

When paying for my dentist appointment today, I also gave them a $2000 deposit for a service that is schedule on January 17, 2023. In regards to itemizing on my personal return, will the deposit be considered as paid in 2022 or in 2023 after the service is rendered and I pay the remaining balance? 

It's more beneficial if I can claim it in 2023. If it is not eligible to be itemized in 2023, I'm guessing I should have it refunded and wait until the appointment to pay it in full. Any advice is greatly appreciated.

[Bsch4477]

Medical expenses are deductible in the tax year they are paid. Only an amount of total medical expenses greater than 7.5 of AGI can be deducted if you itemize. 

[Carl]

Just for clarity:  Generally a "deposit" is just that. Deposits are generally something that gets refunded. For example, when you rent a car, sometimes to have to pay a security or damage deposit. Then when you return the car and pay the rental fees, those deposits are refunded. (Not many car rental companies do this anymore - but there's a few that do.) What you have is a pre-payment. A pre-paid medical expense is claimed in the year the payment is made. But if it's refunded to you later, after you've already claimed/deducted it, then you have to report it as taxable income. It gets tricky though, if you're itemized deductions don't exceed your standard deduction in the tax year you claim it.

[Snoopy70]

I intended to have a service done today that had to be postponed. My actual charge for services today was appx $180. I shouldn't have used the term deposit. No deposit was required.

I simply decided to go ahead and give them the $2000, which will go towards the total amount owed after the procedure on Jan. 17. 

It's currently listed as a credit balance on my account. Since the expense has not yet been incurred, it's simply a credit balance on my account.

I could have the cash refunded and pay the bill with a credit card once it becomes due. With this in mind, I think I am fine claiming it in 2023.

If I'm overlooking something, feel free to let me know. Thanks for the responses. Enjoy upcoming Christmas weekend!

[Carl]

There's a thing called "constructive receipt" that comes into play.

You have paid for a service in 2022 that will not be performed/provided until 2023. Effectively, you have permanently lost control of that money in 2022. (since you no longer have it.) Therefore, the medical expense paid is claimed on your 2022 tax return. This would still hold true even if you paid with a credit card for which you will not receive the bill for, until 2023.

Likewise, the recipient of that money is the one who has "constructive receipt", meaning that have complete control of that money. Therefore, it is reportable by the recipient on their own 2022 tax return, since they received the money in 2022 and can use that money any way they please.

[Snoopy70]

@Carl 

I didn't think about it like that but it makes sense. I'm going to have the credit balance on my account refunded and pay for the service in full in 2023. That was there is no doubt as to when it can be claime

Thanks for the "heads up!"