How Much is the Gluten-Free Tax Deduction Really Worth?

Last week’s blog post about the U.S. gluten-free tax write-off and why I believe it’s a flawed system sparked much conversation. Some were excited about the opportunity of the deduction, others noted the difficulty in reaching the threshold at which you can start taking the deduction and the onerous record-keeping requirements, others agreed with my assessment (in particular the emphasis on whole foods, which cost the same no matter what diet you adhere to), and still others criticized me of being insensitive to those in income-strained situations, for whom the deduction might offer needed financial relief.

This week, I’m exploring how much the gluten-free deduction is really worth. I don’t expect anyone—us or you—to share the particulars of your personal or family financial situation. So I’ve built this illustration using publicly available data about the average American family.

According to the most recent numbers from the U.S. Census Bureau’s American Community Survey, median family income is $61,455. That means that, in order to reach the 7.5% threshold at which you could start taking the deduction, your combined medical expenses (copays, deductibles, prescription drugs, the premium payed for gluten-free foods) would need to reach $4,609.

However, according to the 2012 Milliman Medical Index—which looked at medical costs for an average family of four with two school-age kids and with an employer-sponsored PPO health plan—the average American family pays $3,470 in out of pocket medical expenses per year. When you do the math, you’ll see that you’d need the annual premium paid for GF foods (above and beyond the base price you’d normally pay for those foods) to exceed $1,100, just to reach the 7.5% threshold.

According to the Department of Agriculture Center for Nutrition Policy and Promotion, the average American family spends $236.60 per week on groceries, or about $12,300 per year (a number that’s expected to climb 5% in 2013). But how much extra cost are you likely to bear when purchasing specialty GF foods?

I compiled a hypothetical shopping list of gluten-free foods to use for this example. It’s far more than we buy as a family, but I think it will more closely resemble the purchasing patterns of an average American gluten-free family.

Weekly Purchases

Bread
2 loaves (Udi’s Gluten-Free Whole Grain at $6 per loaf vs. Stone Ground Wheat at $4.50 per loaf)

Pasta
1 pound spaghetti (Tinkyada at $2.50 vs. Barilla at $2.00)

Cereal
2 boxes (Crunchy Vanilla Sunrise at $4.50 and GF Cinnamon Rice Chex at $3.50 vs. Total at $4.00 and Frosted Mini Wheats at $3.00)

Crackers
2 boxes (Glutino at $5 per box vs. Triscuits at $4 per box)

Pizza
2 crusts (Udi’s gluten-free at $6.50 per 2-pack vs. Mama Mary’s at $6 per 2-pack)

Cookies
1 box (Pamela’s chocolate chunk at $4 per 7.25-oz box vs. half the value of Chips Ahoy at $3.50 per 13.75-oz box)

Bagels
1 bag (Udi’s gluten-free at $7.00 per bag of 4 vs. ShopRite plain at $2.50 per bag of 6)

Bi-weekly Purchases

Pancake/Baking Mix
1 box (Bob’s Red Mill gluten-free at $5 vs. Aunt Jemima at $4)

Cake/Brownie Mix
1 box (Betty Crocker gluten-free at $4.50 vs. Betty Crocker Traditional Brownie Mix at $3)

These prices come from Netgrocer, Vitacost, GlutenFreeMall, and in some instances, from the companies themselves in the equivalent of an MSRP.

When you total up all these extra costs—the difference between the GF and standard version, multiplied by the quantity you buy per year based on these frequencies and quantities—the annual premium you pay for all these specialty GF foods is about $780. That leaves you more than $350 shy of being able to start deducting any further costs in excess of 7.5% of your AGI. Thus, in this example, the gluten-free tax deduction is worth nothing.

Of course, many factors will affect the balance of these numbers: your family’s adjusted gross income, your actual non-food out of pocket medical expenses, regional cost of living differences that impact grocery prices, the size of your family and how much food you eat, how many GF specialty foods you buy, and the addition to this list of prepared GF convenience foods from the freezer section (ready-to-bake pizzas, mac-and-cheese, chicken fingers, etc.), are just a few. The results will be highly individual, and for some, the deduction may—and does—result in a reduction in federal taxes.

But for many of us, there’s little to no value in the deduction, which means that you’re fully bearing the added cost of all those GF specialty foods. For me, this highlights two important points: 1) It underscores my emphasis on naturally gluten-free whole foods (fruits, veggies, meat, fish, eggs, etc.), which are healthier for you than many of these processed foods and which cost no more or less whether you’re gluten-free or not. 2) It points to the need for potential reform, because the deduction isn’t helping alleviate financial burden in the way it otherwise should.

What’s your opinion? Have you tracked your GF expenses, and if so, have you been able to take a deduction? How much was it worth?

–Pete

Image courtesy Brokenarts / SXC.hu