[GNC] Recovery vs. reimbursement

[Adam H. Kerman]

Here's a bookkeeping issue I ran into that affects a 2025 tax return. I 
confess that, even though the numbered schedules have been part of the Form 
1040 layout since the 2019 tax year, because they keep changing from year to 
year, I am still not used to them.

I made a reporting mistake but it doesn't affect taxes owed so I won't amend 
the return unless questioned by IRS.

There were medical expenses taken as itemized deductions in 2024. They were 
reimbursed by insurance in 2025. At first, I took them as contra expenses 
against the insurance premiums, but that seemed wrong, so I took them as 
general contra medical expenses.

After filing the tax return, I found discussion of "recoveries" in 
Publication 525. A recovery is a return of an amount taken as a deduction or 
credit in a prior year, and includes reimbursements of medical expenses. The 
recovery is includeable as income to the extent to which there had been a 
tax benefit in a prior tax year. For instance, if the standard deduction had 
been taken in 2024, then the recovery of the medical expense isn't included 
as income.

Going forward, then, I shall not take these as contra expenses if received 
in a later tax year. I'll have two separate income accounts, includeable and 
excludeable, with tax-line mapping for includeable only. But I'm still 
taking a reimbursement received in the same tax year as the expense as a 
contra expense.

The includeable recovery is reported as Other Income on Line 8z, Schedule 1.

That the reimbursement gets treated differently for income tax purposes 
depending upon the tax year in which it is received complicates bookkeeping, 
but of course there is no choice.