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. 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

PARENTS OF CHILDREN WITH SPECIAL NEEDS ENTITLED TO INCOME TAX BENEFITS

PRESENTED BY:

Cynthia Sharp

Sharp Bratton Attorneys at Law



Income tax benefits
INCOME TAX BENEFITS CLAIM DEDUCTIONS OR CREDITS

  • Deductions or credits

  • Medical Expenses

  • Special Instruction

  • Impairment-related work expenditures

  • Earned income tax benefit


Medical expense deduction
MEDICAL EXPENSE DEDUCTION CLAIM DEDUCTIONS OR CREDITS

  • General rule

    • Expense must exceed 7.5% of TP AGI

    • Must itemize


Medical expense deduction1
MEDICAL EXPENSE DEDUCTION CLAIM DEDUCTIONS OR CREDITS

  • 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 CLAIM DEDUCTIONS OR CREDITS

  • 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 CLAIM DEDUCTIONS OR CREDITS

  • Cost of traditional education not deductible

  • Not medical care


Education medical expense
EDUCATION (MEDICAL EXPENSE) CLAIM DEDUCTIONS OR CREDITS

  • 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) CLAIM DEDUCTIONS OR CREDITS

  • 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) CLAIM DEDUCTIONS OR CREDITS

  • 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) CLAIM DEDUCTIONS OR CREDITS

  • 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) CLAIM DEDUCTIONS OR CREDITS

  • 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 CLAIM DEDUCTIONS OR CREDITS

  • 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 CLAIM DEDUCTIONS OR CREDITS

  • 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 CLAIM DEDUCTIONS OR CREDITS

  • 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 CLAIM DEDUCTIONS OR CREDITS

  • 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 CLAIM DEDUCTIONS OR CREDITS

  • 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 CLAIM DEDUCTIONS OR CREDITS

  • 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 CLAIM DEDUCTIONS OR CREDITS

  • 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 CLAIM DEDUCTIONS OR CREDITS

  • “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 CLAIM DEDUCTIONS OR CREDITS

  • 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 CLAIM DEDUCTIONS OR CREDITS

  • 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 CLAIM DEDUCTIONS OR CREDITS

  • 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 CLAIM DEDUCTIONS OR CREDITS

  • 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 CLAIM DEDUCTIONS OR CREDITS

  • 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 CLAIM DEDUCTIONS OR CREDITS

  • 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 CLAIM DEDUCTIONS OR CREDITS

  • 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 CLAIM DEDUCTIONS OR CREDITS

  • $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 CLAIM DEDUCTIONS OR CREDITS

  • 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 CLAIM DEDUCTIONS OR CREDITS

  • 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 CLAIM DEDUCTIONS OR CREDITS

  • 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 CLAIM DEDUCTIONS OR CREDITS

  • 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 CLAIM DEDUCTIONS OR CREDITS

  • 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 CLAIM DEDUCTIONS OR CREDITS

  • 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 CLAIM DEDUCTIONS OR CREDITS

  • Unclaimed tax benefits

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


Any questions
ANY QUESTIONS?? CLAIM DEDUCTIONS OR CREDITS


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