special needs planning

     As parents to a child with special needs, we often have unique financial concerns, and one way to ease those concerns is for us to try to reduce our tax burden. As we know, the number of disabled children has increased in recent years, as has the cost of caring for them. Whether due to diagnostic changes or not, these increased numbers are affecting state and local government programs as they face budget deficits and shortfalls due to increasing demand for services, forcing parents like us to absorb more of their children’s medical care and other related expenses. 

     Further complicating the situation, parents with special needs children are often unaware of the possible tax benefits that are available and overlook hundreds, if not thousands of dollars in potential tax benefits. You should know about these tax benefits, including tax deductions and credits, which are available to parents. Keep in mind that many of these available income tax benefits are unfamiliar even to tax preparers and CPA’s. 

     Parents of children with special needs should familiarize themselves with the various tax deductions and credits related to their children’s medical expenses. For 2017, this is even more important, in light of recent Congressional proposed tax legislation. Many deductions, like medical expenses may disappear completely beginning in 2018. 

     Therefore, parents must carefully monitor the progress of this tax legislation and the impact it may have on their family by year-end and beyond. Below I have listed some of the various useful tax deductions and credits for parents of children with special needs. However, please keep in mind that there are so many other important tax benefits that are not listed. The following tax benefits are listed in a summary format, which may require details to be discussed depending upon your particular circumstances prior to claiming these tax benefits. 

Medical Expenses 

     Generally, parents with a special needs child have numerous out-of-pocket medical expenses. If your family's qualifying medical and dental expenses in a calendar year surpass 10 percent of your taxable adjusted gross income (AGI) then you can deduct the excess amount. Qualifying medical expenses are those expenses incurred to diagnose, cure, mitigate or ameliorate your child’s condition. Deductible medical expenses can include a few of the many unreimbursed medical expenses listed, as follows: 

· Expenses for doctor visits, prescription drugs, and hospital stays. 

· Special instruction, training or therapy such as OT, speech, remedial reading, etc. 

· Equipment or devices used primarily for the alleviation of a person’s illness, such as customized bedding, car seats, wheelchairs, etc. 

· Transportation to and from special schools or therapy sessions. During 2017 you are allowed to deduct 24 cents per mile. 

Special Diets 

     Expenses of following a specifically prepared medical diet such as the gluten-free, casein-free diet can also be considered medical expenses provided it is medically recommended. The mileage expense incurred to travel to the health food store and postal costs on gluten-free products ordered by mail are deductible. 

Legal Expenses 

Legal expenses incurred and related to your child’s special needs may be deductible but only in specific circumstances. 

Tax Credits 

Tax credits are more helpful than a tax deduction since it applies directly to the amount of tax you owe. The tax credits most helpful to parents of special needs children are the Child and Dependent Care Credit and the Earned Income Credit. 

Child and Dependent Care Credit 

     The Child and Dependent Care Credit may be applied when you pay someone to care for your dependent child. A tax credit of up to $3,000 per dependent, to a maximum of $6,000 for all dependents is available for child-care, after-school programs. 

Earned Income Credit 

     The Earned Income Credit (EIC) may be applied by families with a low to moderate income and children under the age of 19, or up to age 23 for full-time students. For 2017, families with adjusted gross income (AGI) levels under $51,567 may qualify for EIC depending on the number of children and their filing status. 

Dependent Exemption 

     Another way to reduce your tax bill is to claim a dependency exemption on your tax return. In 2017, the dependency exemption is $4,050 per dependent subject to income phase-out. 

Children with special needs qualify for dependency exemptions no matter how old they are as long as they live at home with their parents or other qualifying relative. Under most circumstances, you cannot claim a child as a dependent beyond age 19 or 24 if the child is a student. 

Special School Instruction 

     Generally, the unreimbursed cost of attending a “special school” for a neurologically or physically impaired child is deductible as a medical expense if the principal reason for sending the child to the school is to alleviate the disability through the school’s resources. 

The expenses of a special school that are deductible as medical expenses include amounts paid for lodging, meals, transportation, and the cost of ordinary education that is incidental to the special services the school provides. 

Capital Expenditures (Home Modifications) 

     Generally, capital expenditures or home modifications are not permitted as a medical expense deduction. However, a medical expense deduction is available when the cost is reasonable in amount and incurred out of medical necessity for primary use by the individual requiring medical care. 

     Qualifying home modifications required by your child’s condition, for example, construction costs for installation of central air-conditioning, may be deductible if required for respiratory illness. There are other qualifying capital expenditures but they must be reviewed carefully. 

Deduction for Attending Medical Conferences and Seminars 

     Parents who attend conferences primarily to obtain medical information concerning treatment for and care of their child, may include the registration fees and transportation costs, as deductible medical expenses if the costs are primarily for and essential to the child’s medical care. Keep in mind that there are several requirements that must be met in order for the cost to attend to be deductible as a medical expense: 

Other Benefits, Tax Deductions and Credits 

Pre-Tax Benefit Plans. You can pay for qualifying medical expenses for your special needs child using pre-tax dollars of up to $2,500/year via a Flexible Savings Account (FSA), the Health Savings Account (HSA) (contributions of $3,400/year if Single and $6,750 if Married) and the Dependent Care Benefits ($5,000/year). 

Attendant Care at Work.

     Your child can deduct impairment-related work expenses for the cost of required attendant care services and other expenses that permit them to work at their place of employment. 

Adoption Credit. Families that adopt a child who is a U.S. resident or citizen and the child is deemed to have special needs will typically qualify for the maximum adoption credit of $13,570 per child in the year the adoption is finalized but income limits apply. Qualifying expenses include legal fees, court costs, and other adoption-related costs. 

Conclusion 

     Parents of children with special needs know that there are unique challenges involved, including financial hurdles. However, with careful planning and the assistance of an experienced financial and tax advisor, who is sensitive to special needs issues, you can make sure you do what is necessary to reduce your tax burden while protecting your child’s interests.