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.
In 2006, all taxpayers, including those with special needs, are especially susceptible to missing tax
breaks because 2006 tax forms are missing lines on which to claim some of these credits and
deductions. This year, more than ever, taxes will be tricky.
What should those with special needs be aware of?
Medical expenses that exceed 7.5 percent of your AGI are deductible. (State tax rules vary). 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.
Easy-to-overlook tax deductions:
Exceptions and limitations apply, so be certain to seek the counsel of a tax professional and consult
additional resources.
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.
In 2006, all taxpayers, including those with special needs, are especially susceptible to missing tax
breaks because 2006 tax forms are missing lines on which to claim some of these credits and
deductions. This year, more than ever, taxes will be tricky.
What should those with special needs be aware of?
Medical expenses that exceed 7.5 percent of your AGI are deductible. (State tax rules vary). 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 flowcharts and instructions for IRS Form 1040 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 (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 7.5 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 18 cents per mile. 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 individual. 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.
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