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Special Needs = Special Tax Awareness
By Daniel Wishnatsky, CFP®, CRPS®

National Association of Tax Professionals (NATP) Appleton, WI – Because having a family member with special needs can be costly, it is particularly important that these families take advantage of all the tax deductions and credits to which they are entitled. Unfortunately, many taxpayers who qualify for these tax breaks are unaware and fail to claim them. Lesser-known tax breaks are hard to keep up with, and even tax preparers who may have limited exposure to these situations can miss them. As a taxpayer, it’s important to be informed.


What should those with special needs be aware of?

Medical expenses that exceed 10 percent of your AGI are deductible on Schedule A (Form 1040). The threshold was 7.5% for tax years before 2013. (State tax rules vary. California conforms to the federal threshold.)

The Internal Revenue Service states that medical care expenses must be primarily to alleviate or prevent a physical or mental defect or illness. Medical aids such as ramps, lower counters, roll-in showers, etc. are fully deductible as medical expenses. Expenses that are merely beneficial to general health, such as vitamins or vacations are not. Medical expenses must be paid during the tax year for which you are filing, regardless of when the services were provided and must be reduced by any reimbursement received; for example, medication costs $100 and insurance pays $70. Only the $30 paid out-of-pocket counts. “In addition, medical expenses are considered ‘paid’ when charged to a credit card, so a taxpayer can take the deduction in the year if charged by December 31 of that tax year,” adds NATP tax preparer, Louise Gritmon, enrolled agent from Medford, New York.

· Determining filing status and number of dependents often confuses taxpayers. Claiming incorrectly can have a bearing on the amount of tax liability you owe. Consult a tax professional or the instructions for Schedule A to be sure you claim correctly.

· Depending on your earned income, those with a special needs dependent may be eligible for both the child tax credit and the additional child tax credit (IRS Form 8812).

· Medical expenses not taken as itemized deductions may in some cases help qualify for the child and dependent care credit on IRS Form 2441.

· Expenses for before or after school care may qualify for the child and dependent care credit.

· Distributions taken before age 59 ½ from a qualified plan or IRA, if used for qualified medical expenses that exceed 10 percent of adjusted gross income (AGI), are not subject to the 10 percent penalty normally assessed for early distribution.

Easy-to-overlook tax deductions:

· Special schooling recommended by a doctor for the main purpose of helping to overcome learning disabilities for physically or mentally handicapped, and/or to assist in mainstreaming. Professional staff and specialized instruction must be a key component of the educational program.

· Car expenses for medical transport or medical trips. Taxpayers can deduct actual gas and oil expenses, or use the medical mileage rate set by the IRS every year. Parking fees and tolls can be added to the total. (Insurance, repairs, and depreciation do not qualify.)

· Lodging for medical trips, but only under certain circumstances and they cannot exceed $50 per night per person, including someone traveling with the person receiving the medical care. Meals are not deductible.

· For medical conferences, admission costs and transportation are deductible if the conference directly affects you, your spouse, or your dependent. Meals and lodging are not deductible.

· Nutritional supplements are deductible when recommended by a doctor for treatment of a specific medical condition only.

· Special diets, such as a gluten-free/casein-free (GF/CF) diet, are partially deductible. For example, a particular box of GF/CF cereal costs $5. Its counterpart at a regular grocery store costs $3. Only the $2 difference is deductible.

· Therapy received as medical treatment. Example: speech or physical therapists.

· Other medical deductions including such items as: medical insurance premiums, lab fees, specialized medical equipment in the home, medicines, costs of professional services (dentist, doctor, chiropractor, psychologist, nurse, etc.), and advance payments for lifetime care of special needs dependents. Rob Casey, enrolled agent and NATP member from Cumming, Georgia, shared a situation where he was able to save a client on her taxes, “A client needed to totally renovate her home so her disabled mother, her dependent, could move in. I advised her to have their house appraised before and after the renovations and to keep track of expenses. The expenses in excess of the increase in value of the house were qualified medical expenses. This advice saved her over $15,000.”

· Impairment-related work expenses – “Employees who have a physical or mental disability that limits employment or one or more major life activity may be able to claim impairment-related work expenses on Form 2106 or 2106-EZ. These expenses are for care or equipment at your workplace that are necessary to work," adds NATP Member, Valerie Kennedy, MBA, of Merrillville, Indiana.

Exceptions and limitations apply, so be certain to seek the counsel of a tax professional and consult additional resources.

To find a professional tax preparer, look to a member of NATP, who subscribes to a stringent code of ethics and standards of professional conduct.

Members of the National Association of Tax Professionals (NATP) work at offices that assist over 11 million taxpayers with tax preparation and planning. The average NATP member has been in the tax business for over 20 years and holds a tax/financial designation and/or a college degree. NATP has nearly 18,000 members nationwide. Members include individual tax preparers, enrolled agents, certified public accountants, accountants, attorneys, and financial planners. Learn more at NATP is a nonprofit professional association founded in 1979 to serve professionals working in all areas of tax practice through professional education, tax research, and products. The national headquarters, located in Appleton, WI, employs a staff of 68.

Updated 27 November 2013

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