You just spent $18,000 on your first IVF cycle. Tax season rolls around, and you're ready to claim every dollar back only to discover half your expenses don't qualify. Or worse, you're planning surrogacy after failed IVF attempts, and the IRS denies $60,000 in claims you assumed were deductible.
Here's the brutal truth: fertility treatments come with powerful tax deductions, but one wrong move can cost you thousands.
As a tax professional specializing in complex deductions for business owners and high-income earners, I've watched countless clients navigate this minefield. The difference between IVF and surrogacy tax treatment isn't just technical—it's the difference between reclaiming $7,000 or watching it vanish.
This guide breaks down exactly what the IRS allows, what they don't, and how to maximize every legitimate deduction while staying audit-proof.
Why IVF Tax Deduction Matters More Than Ever in 2025
If you're a business owner or high-earning professional balancing fertility treatments with strategic tax planning, you already know every deduction counts. Under IRS Section 213, you can deduct qualified medical expenses including infertility treatments when they exceed 7.5% of your adjusted gross income (AGI).
AGI threshold for medical expense deductions
Here's what that looks like in real numbers:
- Earn $200,000? You need $15,000 in medical expenses before deductions kick in.
- Earn $500,000? That threshold jumps to $37,500.
For perspective, the average IVF cycle runs $15,000 to $20,000 according to recent fertility clinic data. Multiple cycles can easily push you past the AGI threshold, potentially saving $5,000 to $10,000 in taxes if you're in the top brackets.
But here's where it gets complicated: surrogacy follows completely different rules that block most of your expenses from being deductible.
The IVF Tax Deduction Advantage: What Actually Qualifies
The good news? When you undergo IVF yourself (or your spouse does), the IRS treats it straightforwardly as medical care under Publication 502. This means you can deduct:
Fully Deductible IVF Expenses
- Fertility screenings and diagnostic testing
- Hormone medications and injections
- Egg retrieval and sperm collection procedures
- Embryo creation and transfer procedures
- Anesthesia and surgical fees
- Lab work and genetic testing
- Temporary embryo storage (when medically necessary)
- Travel costs to and from appointments (mileage, parking, tolls)
- Lodging for out-of-town treatment (within IRS limits)
Real-World Example
Jennifer and Marcus, both self-employed entrepreneurs, spent $34,000 on two IVF cycles in 2024. Their combined AGI was $280,000, making their threshold $21,000. They meticulously documented every expense from pharmacy receipts to mileage logs. After exceeding the threshold, they deducted $13,000 in qualified expenses. At their 32% marginal tax bracket, this saved them $4,160 in federal taxes.
The key difference with IVF? You're paying for medical care directly affecting your body or your spouse's body. The IRS recognizes infertility as a medical condition, making these treatments clearly deductible.
The Surrogacy Trap: Why Your $80,000 Investment Won't Save You Much in Taxes
Now here's where things get painful for many families.
In January 2025, the IRS issued Private Letter Ruling (PLR) 202505002, the most recent guidance on surrogacy deductions. The ruling drew a hard line: surrogate compensation, agency fees, and most surrogacy-related costs are NOT deductible medical expenses.
What the IRS Disallows for Surrogacy
- Base compensation paid to the surrogate ($40,000-$60,000 typically)
- Surrogate's living expenses and travel
- Surrogate's maternity clothing allowance
- Agency fees and matching services
- Legal fees for surrogacy contracts
- Surrogate's medical insurance premiums
- Childbirth expenses for the surrogate
Why? The Critical Legal Distinction
The IRS reasoning is deceptively simple: these expenses aren't for medical care of you, your spouse, or your dependent. The medical procedures affect the surrogate's body, a third party who isn't your dependent under Section 152(a).
Think of it like this: You can deduct your own surgery. You can't deduct someone else's surgery unless they're your legal dependent. The surrogate isn't your dependent, so her medical care doesn't qualify.
This interpretation has been consistently upheld in cases like Morrissey v. United States (2017) and Magdalin v. Commissioner (2008).
What You CAN Still Deduct with Surrogacy
- Your own diagnostic testing and fertility screenings
- Your spouse's sperm collection and storage
- Egg donor medical expenses (the procedures, not compensation)
- IVF procedures creating the embryo
- Your own medications and treatments
The Math That Hurts
A typical surrogacy arrangement costs $120,000 to $150,000. Based on current IRS guidance, you might only deduct $15,000 to $25,000 of that total, the portion directly related to your medical care and the actual IVF procedures.
Compare that to IVF: A $34,000 investment in two cycles might yield $13,000 in deductions (after the AGI threshold). A $120,000 surrogacy journey might yield the same $13,000 deduction, leaving $95,000 unrecoverable.
IVF vs. Surrogacy: Tax Deduction Comparison
IVF Treatment
Advantage: Most medical expenses directly qualify as deductions
Surrogacy Journey
Disadvantage: Only medical procedures for intended parents qualify
The Documentation Disaster That Kills Legitimate Deductions
Even with qualifying IVF expenses, poor documentation can destroy your deductions faster than an IRS audit.
I've seen it happen: A couple spent $28,000 on IVF and properly exceeded their AGI threshold. But during review, they couldn't produce itemized receipts for $9,000 in medication purchases, just credit card statements. The IRS disallowed those expenses. That cost them $2,880 in lost tax savings.
Your Bullet-Proof Documentation Checklist
1. Organize Weekly, Not Annually
- Collect receipts immediately after each appointment
- Photograph or scan every document the day you receive it
- Create a dedicated cloud folder (Google Drive, Dropbox) for backup
2. Essential Documents You Must Keep:
- Itemized statements from your fertility clinic (must show specific services, not just "IVF package")
- Individual pharmacy receipts with medication names and dates
- Credit card statements showing medical provider charges
- Mileage logs with dates, starting point, destination, and medical purpose
- Hotel receipts if traveling for treatment (with dates matching appointments)
- A letter from your physician diagnosing infertility and confirming medical necessity
3. Red Flags That Trigger IRS Questions:
- Invoices without the provider's Tax ID or EIN
- Vague descriptions like "services rendered" instead of specific procedures
- Round numbers that look estimated rather than actual charges
- Missing correlating appointment records for claimed mileage
- Legal or agency fees mixed with medical expenses
Pro Tip: Create a simple spreadsheet with columns for Date, Provider, Service Description, Amount, and Payment Method. Update it monthly. This single document can save you hours during tax prep and provide instant answers during an audit.
The AGI Threshold Strategy: Timing Is Everything
Here's a powerful strategy most people miss: bunching your fertility expenses into a single tax year.
Remember, you only benefit from itemized deductions after you clear the 7.5% AGI threshold. If you spread three IVF cycles across three years, you might never reach the threshold. But consolidate those same expenses into one year? Suddenly you're claiming significant deductions.
Case Study: The Consolidation Win
David and Sarah, business owners with $400,000 AGI, planned three IVF cycles totaling $45,000. Their threshold was $30,000 (7.5% of AGI).
Spreading payments across three years:
- Year 1: $15,000 spent → $0 deductible (below threshold)
- Year 2: $15,000 spent → $0 deductible (below threshold)
- Year 3: $15,000 spent → $0 deductible (below threshold)
- Total tax savings: $0
Consolidating into one year:
- Year 1: $45,000 spent → $15,000 deductible (after $30,000 threshold)
- At 35% tax bracket: $5,250 tax savings
How to implement this strategy:
- Use fertility clinic financing or multi-cycle programs
- Consider IVF shared-risk packages that bundle multiple attempts
- Prepay for procedures scheduled in early January
- Time egg retrieval, embryo creation, and transfer within the same calendar year
Important caveat: You can only deduct expenses paid in the year of service. You can't prepay for 2026 treatment in 2025 just for the deduction.
Common Mistakes That Cost Business Owners Thousands
Mistake 1: Mixing Business and Personal Expenses
If you're self-employed, keep fertility expenses completely separate from business deductions. Don't try to classify fertility treatment as a business expense—it's personal medical care that belongs on Schedule A.
Mistake 2: Forgetting Insurance Reimbursements
Any amount your insurance pays must be subtracted from your deductible expenses. If insurance covers $5,000 of a $20,000 cycle, you can only deduct $15,000 (minus the AGI threshold).
Mistake 3: Ignoring Employer FSA/HSA Contributions
If you paid for IVF with FSA or HSA funds, those expenses were already tax-advantaged. You can't double-dip by also claiming them as itemized deductions.
Mistake 4: Missing the Standard Deduction Comparison
Itemizing only makes sense if your total itemized deductions (medical, mortgage interest, state taxes, charitable contributions) exceed the standard deduction ($29,200 for married filing jointly in 2025). Run the numbers before assuming itemizing benefits you.
Mistake 5: Failing to Get Professional Tax Advice
Fertility treatment deductions intersect with complex areas: medical expense rules, itemization strategies, multi-year planning, and potential IRS scrutiny. The cost of professional guidance is often recovered many times over in legitimate tax savings.
Need Help With Fertility Treatment Tax Deductions?
If you've undergone IVF treatment in 2024 or are planning treatment in 2025, don't navigate these deductions alone. The tax code complexity, recent IRS rulings, and audit risks make professional guidance essential—especially when you're balancing business ownership, high income, and family planning.
Schedule a Consultation
