Deductions for Taxpayers and Families With Special Needs

APRIL 5, 2010  VOLUME 17, NUMBER 11

Tax time is upon us yet again — just like last year and the year before. Funny how it rolls around every twelve months. OK — “funny” might not be the best word.

There is a certain irony in describing the tax deductions available to families raising or caring for a child with special needs. What families usually need is help (both financial and otherwise), and tax deductions may not provide much help for the family with income limited by the need to provide care for their child. Still, some deductions may be useful and many often go unclaimed; perhaps we can alert you to one or more you should consider while preparing or filing your own tax returns.

Claiming a dependent. Are you providing more than half the financial support for a person with a disability? You may be able to claim them as a dependent on your tax return. Of course, that means no one else can claim them as a dependent — including themselves.

Medical deductions. Remember that medical deductions are only useful on your federal income tax return to the extent that they exceed 7.5% of your adjusted gross income. Let’s use real numbers: if your income is about the national median this year, you will report something like $45,000 to $50,000 of income. In that case the first $3,500 (or so) of medical expenses you incur will not affect your tax return at all.

With that in mind, there are still expenses you should track. You might find that the 7.5% limit is easier to reach than you thought. You might also live in a state that does not apply the limitation (Arizona, for instance), so that medical expenses should be tracked.

What medical deductions most often get overlooked? Expenses for special schools might be deductible as a medical expense — if a medical professional has signed a recommendation. Tutoring, specialized books and software, evaluations and transportation might also be includible. Sometimes even special summer programs, residential schools — even disability-focused conferences — may be deductible as a medical expense.

Child and Dependent Care Credit. This one is not a deduction, but a credit — and that makes it valuable even for those who might not have enough medical expenses to deduct them. The credit is available to parents who have to pay caretakers in order to work (and earn income). The amount of the credit: up to 35% of the care costs incurred. See IRS Publication 503 for more information.

There are also other deductions and credits you might be overlooking. We were recently interviewed for a television report that indicated up to 30% of families with special needs children may failed to claim tax benefits due to them.

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