Parents of children with special needs entitled to income tax benefits
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PARENTS OF CHILDREN WITH SPECIAL NEEDS ENTITLED TO INCOME TAX BENEFITS PowerPoint PPT Presentation


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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. Deductions or credits Medical Expenses

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PARENTS OF CHILDREN WITH SPECIAL NEEDS ENTITLED TO INCOME TAX BENEFITS

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Parents of children with special needs entitled to income tax benefits

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

PARENTS OFTEN UNAWARE OF SIGNIFICANT BENEFITS AND FAIL TO CLAIM DEDUCTIONS OR CREDITS


Income tax benefits

INCOME TAX BENEFITS

  • Deductions or credits

  • Medical Expenses

  • Special Instruction

  • Impairment-related work expenditures

  • Earned income tax benefit


Medical expense deduction

MEDICAL EXPENSE DEDUCTION

  • General rule

    • Expense must exceed 7.5% of TP AGI

    • Must itemize


Medical expense deduction1

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 deduction2

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

EDUCATION

  • Cost of traditional education not deductible

  • Not medical care


Education medical expense

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 expense1

EDUCATION (MEDICAL EXPENSE)

  • Regular School can be classified as “Special School” for individual

  • School must have special curriculum for mentally disabled individual


Education medical expense2

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 expense3

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 expense4

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

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 seminars1

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

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

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

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

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

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 expenses1

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 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 dependents1

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 dependents2

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

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 credit1

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 credit2

EARNED INCOME TAX CREDIT

  • Residency test

  • Resided with the taxpayer for more than six months during the calendar year

  • Publication 596


Earned income tax credit3

EARNED INCOME TAX CREDIT

  • 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

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 expenses1

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 expenses2

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 expenses3

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

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 assistance1

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

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

RETROACTIVE CLAIM FOR REFUNDS

  • Unclaimed tax benefits

  • File amended returns and collect refunds retroactively for up to 3 years


Any questions

ANY QUESTIONS??


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