It seems like everywhere you look there’s another diet plan being advertised. Sure, we all know about Weight Watchers, Nutrisystem, and Medifast. But there’s also been some rather unusual ones. There’s the Cookie Diet where you eat several cookies a day and somehow lose weight. I have my doubts though. I once ate an entire package of Double Stuf Oreos and I don’t think I lost a single pound. Then there’s the Subway Diet which defies the laws of nature. Apparently, you can lose dozens of pounds by feasting on foot-long hoagies every day. And let’s not forget the ever-popular tapeworm diet from the early 1900s. People would actually ingest a tapeworm with the theory being that the worm would grow in your intestines and absorb the food. For some reason, this last one has lost some of its luster in recent years. I suspect there must be some downside of having a worm that can grow to be 30 feet long lodged in your intestines.

The fact is, Americans spend over $65 billion on weight loss every single year. There’s gym fees, weight loss program fees, diet pills, meal replacements, and, of course, the cost of tapeworms. It’s easy to see how these costs add up. Considering we spend more on weight loss than the entire GDP of some countries, we must be the skinniest country, right? Well, not exactly. In fact, we’re the 9th most obese country in the world. I’m not sure why, but it may have something to do with the fact that the $65 billion we spend on weight loss is completely dwarfed by the $117 billion we spend on fast food. But the question that’s relevant for now is whether any of these costs are tax deductible.

In 2002, the IRS issued a landmark ruling that obesity is considered a medical condition, and therefore costs incurred for its treatment is a tax-deductible medical expense. It should be noted that a physician must diagnose the patient with obesity; there’s no deductions if you simply decide you need to lose some weight.

So, in short, if you begin a diet regimen to improve your health or appearance, then no expenses are deductible, but if it’s to treat a specific disorder, such as obesity or hypertension, then some of the expenses may be deductible.

So let’s discuss what exactly can be deducted for those who qualify. The IRS allows you to deduct any fees paid to join a weight loss program. This includes the initial fee as well as additional fees to attend meetings. These meetings are typically used to develop diet plans, discuss menus and receive literature regarding the plan.

Unfortunately, the IRS is very adamant that any costs incurred to buy reduced-calorie diet foods (think Nutrisystem and Medifast) are not a deductible expense. The IRS views these foods as mere substitutes for regular food you would buy to satisfy your nutritional requirements, and therefore are considered non-deductible personal expenses.

The same goes for membership dues to a gym or health club. The IRS does not allow a deduction for these. And while accessories such as yoga mats, dumbbells and running shoes are not deductible, items that are specifically prescribed by a physician, such as orthotics and knee braces, are deductible.

While the qualified expenses above are technically tax deductible, in reality very few people are able to get this benefit. That’s because you can only deduct medical expenses that exceed 10 percent of your adjusted gross income. That’s quite a hurdle for most taxpayers, unless you already have a lot of other medical expenses.

But what you can do is get reimbursed by your flexible spending account for these expenses—whether it’s an HSA or FSA. Flexible spending accounts follow IRS guidelines for qualified medical expenses, so by the IRS ruling that weight loss programs are deductible expenses, you may now be reimbursed for these expenses. This enables you to use pre-tax dollars to cover the costs.

Another issue relevant to weight loss is if you become a consultant/health coach for one of the diet programs. This has become increasingly popular, especially for Medifast. Most likely you will receive a 1099-Misc at the end of the year as an independent contractor. The first thing you must realize so you can plan accordingly is that no taxes have been taken out all year. That means you need to be prepared to pay them with your tax return.

So let’s say you made $10,000 as a health coach this year. If you’re in the 25 percent tax bracket, then you must pay $2,500 in income taxes at year end. Unfortunately, it doesn’t stop there though. As an independent contractor you’ll have to kick in another 14.13 percent for self-employment taxes (Social Security and Medicare taxes). So on that $10,000 you made, you’ll owe $3,913 in federal taxes.

This is where tax planning becomes crucial to the process. The first strategy is to negate as much of the taxable income as possible with qualified business expenses. This could be business mileage, supplies, travel expenses, etc. Another thing you should consider is taking a home office deduction. The second strategy which may make sense when you begin making a considerable income from this business is incorporating as an S Corporation. While the details of this strategy is beyond the scope of this article, you can use the S Corporation to eliminate much of the self-employment taxes, saving you thousands each year.

By Daniel Magence, CPA, Esq.

Daniel Magence, CPA, Esq. is a principal at Pristine CPA Solutions, LLC (www.pristinecpa.com). Pristine CPA Solutions offers tax and accounting services to individuals and businesses of all sizes, whether it’s tax returns, bookkeeping, payroll services or personal income budgeting. He can be reached at [email protected] or 201-326-6908 if you have any questions or comments, or are interested in using Pristine CPA’s services. Feel free to contact us for a free consultation.