If you or a loved one has disabilities or special needs, you know that the costs related to care can be substantial. The good news is, you may be able to reduce these costs by maximizing the tax strategies available to you.
Below I’ve outlined four main areas to focus on when assessing your tax situation. A Certified Public Accountant (CPA) or a tax adviser who is familiar with special needs planning is an important person to have on your financial team. This tax professional can help to ensure you’re taking advantage of all tax deductions that you are eligible for and that you maintain them in the future. Medical Expenses: As of 2019, an itemized deduction is available for medical expenses greater than 10% of Adjusted Gross Income (AGI). For many this is a large hurdle to overcome, but for someone with costs related to a disability or special need, you may be spending double the amount of a typical taxpayer. The key is to be diligent in tracking your medical expenses, obtaining documentation of physician recommended expenses, and planning ahead with your CPA. Examples of deductible medical expenses are: prescription drugs, over the counter insulin and/or syringes, dental costs, psychological or psychiatric services, premiums paid for Medicare Part B, and the cost of guide dogs, wheelchairs, etc. Keep in mind that you cannot deduct expenses for nonprescribed medicines, drugs, vitamins, or health foods. Some medical expenses that are deductible are often overlooked. These include costs related to special schools and institutions, capital expenditures, medical conferences and seminars, nursing home expenses and long-term care costs, and medical travel and transportation. Special schools and institutions: If your child attends a qualifying special school, you may deduct the entire unreimbursed cost as a medical expense. In addition to tuition, the costs can include lodging, meals, transportation, incidental education costs, supervision at the school, treatment, and training. Private tutoring expenses may also qualify. Capital expenditures: If a physician recommends that a capital improvement should be made to your home for medical reasons, you may deduct the cost in excess of the increase in your home’s fair market value (FMV). If the recommendation is to remove structural barriers, the full cost may be deductible. An example is installing a lift for someone with a physical limitation. The full cost of the lift and installation may be deductible. The ongoing costs to maintain it may also be deductible in subsequent years, if a medical reason still exists. Medical conferences and seminars: If your doctor recommends that you attend sessions to learn more about your dependent’s medical condition in order to assist them, the cost of attending these conferences and seminars, including transportation, is deductible. Lodging and meal costs are not. Nursing home and long-term care: Expenses incurred in a nursing home or long-term care (LTC) facility are deductible if you are chronically ill or the facility is primarily for medical care. In most cases, facilities primarily provide custodial care. The medical care component specifically may be deductible if separately stated on the bill. You may also deduct a portion of the cost of LTC insurance premiums. Medical travel and transportation: The cost of travel to a medical facility, not including trips to improve general health, is deductible. If you use your own personal automobile, you may deduct a certain amount based on miles traveled. Unlike for medical conferences and seminars, a portion of lodging costs for you and one other person may be deductible, if an overnight stay is required. The meals during your stay, though, are not. In addition to tracking expenses for a deduction, you should consider a Flexible Saving Account (FSA) to set aside pre-tax money to directly lower your taxable income. This account is used to cover medical expenses throughout the year. Keep in mind that the full account balance must be used by year end.