Transcript PARENTS OF CHILDREN WITH SPECIAL NEEDS ENTITLED TO …

PARENTS OF CHILDREN WITH
SPECIAL NEEDS ENTITLED TO
INCOME TAX BENEFITS
PRESENTED BY:
Cynthia Sharp
Sharp Bratton Attorneys at Law
PARENTS OFTEN UNAWARE
OF SIGNIFICANT BENEFITS
AND FAIL TO CLAIM
DEDUCTIONS OR CREDITS
INCOME TAX BENEFITS
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Deductions or credits
Medical Expenses
Special Instruction
Impairment-related work expenditures
Earned income tax benefit
MEDICAL EXPENSE DEDUCTION
• General rule
– Expense must exceed 7.5% of TP AGI
– Must itemize
MEDICAL EXPENSE DEDUCTION
• Fees for therapeutic and behavioral support
services deductible
• Prescribed Vitamin Therapy
• Prescribed Equestrian Therapy
• Installation of Special Equipment in Home
• Diagnosis and treatment
• Transportation
MEDICAL EXPENSE DEDUCTION
• If deduction claimed but later
reimbursement by insurance company or
school district
– Report as taxable income for year in which
reimbursement is received
EDUCATION
• Cost of traditional education not deductible
• Not medical care
EDUCATION (MEDICAL EXPENSE)
• Deduction allowed for cost of attending a
“Special School” for mentally or physically
handicapped person (Reg. 1.213-1(e)(1)(v))
• Principal reason for attendance is to
alleviate child’s handicap
• Physician must recommend special school
based upon diagnosis of disorder
EDUCATION (MEDICAL EXPENSE)
• Regular School can be classified as “Special
School” for individual
• School must have special curriculum for
mentally disabled individual
EDUCATION (MEDICAL EXPENSE)
• Deduction allowed for education of dyslexic
children
• Principal reason for attending the program
must be to obtain medical care in the form
of special education
• Focus is on what special services the school
actually provides the student
• PLR 200521003
EDUCATION (MEDICAL EXPENSE)
• Deduction allowed where special needs
child has developmental disorders
• Self-contained program in a school
designed to enable her to compensate for
and overcome diagnosed medical disorders
• Purpose of program was to prepare her for
succeeding in college environment
• PLR 200729019
EDUCATION (MEDICAL EXPENSE)
• Fees paid to specially trained teacher for private
tutoring
• Rev. Rul. 70-285 and 78-340
• Special instruction such as lipreading, sign
language instruction, speech therapy and remedial
reading instruction
• Related books and material
• PLR 8616069 – conditions and instruction which
may not qualify
CONFERENCES AND SEMINARS
• Deduction permitted for medical
conferences and seminars
• Rev. Rul. 2000-24
• Registration fees and travel expenses
deductible
• No deduction for meals or lodging
• Excess over 7.5% of AGI
CONFERENCES AND SEMINARS
• Topic of conference or seminar must be child’s
medical condition (not general health and well
being)
• Obtain written recommendation from physician
• Social and recreational activities not deductible
• Primary purpose of visit must be to attend the
conference
MEDICAL TRAVEL AND
TRANSPORTATION
• For 2008 tax returns:
– 19 cents per mile 1/1 – 6/30
– 27 cents per mile 7/1 – 12/31
– Lodging expenses up to $50 per day may be
deducted for Taxpayer and one additional
person for necessary overnight stays
– Meals are not deductible
FSA and HSA
• Useful if ineligible for medical expense
deduction
• Flexible Savings Arrangement or Health
Savings Account
• Related medical expenses can be paid with
pretax dollars
• IRA Publication 969
HEALTH SAVINGS ACCOUNT
• Worker can use up to $5,800 for family
coverage (2008)
• May be opened only when employee has
“high deductible” health insurance plan
• Amounts in HSA may be carried over to
subsequent years
FLEXIBLE SAVINGS ACCOUNT
• Can be part of “cafeteria plan” offered by
employer
• Employee can allocate pretax income to
account and then withdraw to pay expenses
• Employers may contribute
IMPAIRMENT RELATED WORK
EXPENSES
• IRC Sec. 67(d)
• “Handicapped” individual who works
• Business deduction permitted for attendant care
services at place of employment
• Ordinary and necessary expense to enable the
person to maintain employment
• 7 ½ % threshold does not apply
• 2% AGI limit on unreimbursed employee business
expenses inapplicable
IMPAIRMENT RELATED WORK
EXPENSES
• “Handicapped individual” is one who has a
physical or mental disability or impairment
which is functional limitation to
employment or substantially limits one or
more major life activities. IRC Sec.
190(b)(3)
• Use Form 2106 or Form 2106-EZ
EXEMPTION FOR DEPENDENTS
• Exemption is $3,500 for 2008
• Phased out if AGI exceeds
– $159,950 (if single)
– $239,950 (if married filing joint)
EXEMPTION FOR DEPENDENTS
• Five prong test must be satisfied
• Support test
• Relationship or member of household test – Must be
“qualifying relative” or member of taxpayer’s household
for the whole year
• Gross income test – Dependent’s GI can’t exceed the
exemption amount
• Joint return test – Married dependent not permitted to file
joint return for the year
• Citizenship or Residency Test – Dependent must be citizen
or resident of U.S. or resident of Canada or Mexico
EXEMPTION FOR DEPENDENTS
• Qualifying Relative
– son, daughter, stepchild, foster child or descendant
– Brother sister, half brother, half sister, stepbrother, stepsister or
descendant
– Age test or totally and permanently disabled
• Support Test
– If child, child cannot have provided more than half of his or her
own support for the year
– If other qualifying relative, you must have provided more than half
of person’s total support
– Publication 501
EARNED INCOME TAX CREDIT
• Cannot file as married filing separately
– If separated, head of household
• If one Qualifying Child
– AGI under $33,995 (single)
– $36,995 (married filing joint return)
• More than one Qualifying Child
– AGI under $38,646 (single)
– $41,646 (married filing joint return)
EARNED INCOME TAX CREDIT
• Relationship test
• Biological child, adopted child, stepchild or
foster child (or descendant)
• Brother, sister, half brother, half sister,
stepbrother, stepsister (or descendant)
EARNED INCOME TAX CREDIT
• Residency test
• Resided with the taxpayer for more than six
months during the calendar year
• Publication 596
EARNED INCOME TAX CREDIT
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Age test
Under 19 at end of year
Under 24 and a student
Permanently and totally disabled (Cannot
engage is SGA and condition expected to
last continuously for at least a year or can
lead to death)
CREDIT FOR SPECIAL NEEDS
ADOPTION EXPENSES
• $11,650 for expenses of adopting special
needs child
– No matter what you paid (even if zero)
• Qualifying expenses
– Legal fees
– Court costs
– Other related costs (legal adoption)
CREDIT FOR SPECIAL NEEDS
ADOPTION EXPENSES
• Must be U.S. Citizen or resident and
requiring adoption assistance
• Limit is per child, not per year
CREDIT FOR SPECIAL NEEDS
ADOPTION EXPENSES
• TY in which adoption is finalized – allowed to
claim credit for expenses paid in that year
• TP claims credit for expenses paid in year in
which adoption is not finalized in that following
year
• Credit for payment of expenses in year following
final adoption taken in year payments are made
• Carryover of 5 years if credit exceeds tax liability
CREDIT FOR SPECIAL NEEDS
ADOPTION EXPENSES
• Phased out for taxpayers whose AGI exceeds
$174,830
• Phased out completely at $40,000 above the
threshold
• Calculation of the amount of credit that is phased
out:
– Divide amount of AGI in excess of $174,830 by
$40,000, Multiply the resulting percentage by $11,650
QUALIFIED DEPENDENT CARE ASSISTANCE
• Credit for expenses incurred for care of
dependents
– If necessary for TP to remain gainfully employed
– Regular child care services, after-school programs and
summer camps
– Overnight summer camp expenses do not qualify
– Payment to relative qualifies as long as relative is not
dependent of taxpayer
QUALIFIED DEPENDENT CARE ASSISTANCE
• Income level determines amount of credit
allowed
– Ranges from 20 to 35 percent of qualifying
expenses
• One qualified dependent – Up to $3,000 per
year
• Two or more – up to $6,000 per year
• IRS Publication 503
TAXABLE INCOME
• SSI Benefits not included in Gross Income
• Settlements or Judgments relating to
personal injury or sickness not included in
Gross Income
• Punitive Damages, settlements or judgments
included in Gross Income
RETROACTIVE CLAIM FOR REFUNDS
• Unclaimed tax benefits
• File amended returns and collect refunds
retroactively for up to 3 years
ANY QUESTIONS??