Key Tax Breaks for Disabled Family Members
Don’t overlook these deductions and credits on your 2012 tax return
If you’re caring for an elderly parent, a spouse with a disability or a child with special needs, you’ll want to know about tax credits and deductions that you might be able to claim on your 2012 tax return.
“Over 51 million Americans have a disability and 120 Americans are living with a chronic illness, yet many people aren’t aware of how to minimize their taxes if they are caring for someone with a disability,” says Martin Shenkman, a tax lawyer and accountant in Paramus, N.J. (Shenkman and his wife, Patti, whose multiple sclerosis was diagnosed in 2006, founded Chronicillnessplanning.org, a nonprofit offering free financial and estate planning seminars.)
Here, a guide to the essential tax breaks:
Deductible Medical Expenses If you provided more than 50 percent of the medical costs for someone who was chronically ill in 2012, you may be able to deduct expenses for treatments and diagnostic, preventive or rehabilitative services.
(MORE: How to Claim Tax Breaks Supporting Your Parents)
These expenses include prescriptions, medical equipment and home modifications, like wheelchair ramps and bathroom grab bars. IRS Publication 502: Medical and Dental Expenses has a complete list of qualifying health care expenses.
But there’s a catch: You can deduct medical expenses only to the extent they exceed 7.5 percent of your 2012 adjusted gross income. You write off the expenses on line 1 of Schedule A.
“One deduction people overlook is the cost of transportation to and from doctor appointments, labs, medical tests, the hospital and pharmacy," says Monika Hengesbach, an enrolled agent and owner of Decision Financial Services in Walnut Creek, Calif., who is caring for her elderly mother.
If you drove to these places, multiply each mile by 23 cents. “For documentation purposes, you should keep a mileage log and cross reference to your calendar of appointments,” Hengesbach says.
Work-Related Medical Expenses Shenkman says you may also be able to claim these costs when calculating medical deductions for a disabled member of your family.
Examples: a guide dog or special telephone equipment for the hearing impaired. IRS Publication 529: Miscellaneous Deductions details qualifying impairment-related work expenses.
Children’s Medical and Related Expenses “In my experience, approximately a third of families with a special needs child have one or more unclaimed tax benefits,” says Regina Levy, a CPA who owns her own practice in Los Angeles and the mother of two special needs children.
“If your child has a diagnosed medical condition, such as autism, attention deficit hyperactivity disorder or cerebral palsy and you are following a plan of care recommended by a physician, you can deduct costs, such as tuition or tutoring by someone trained to meet the child’s needs,” Levy adds.
That’s because this type of education is considered a medical expense as long as the method of instruction is specifically tailored to meet the child’s needs.
The cost of therapeutic supplies is another frequently overlooked write-off. “Therapists often request the child have specific toys and materials," Levy says, "and these costs are deductible.”
Home Modifications Don’t forget to claim a home improvement deduction if it was recommended by a physician to assist a disabled family member — say, an allergist-prescribed air-cleaning system installed to help a child with asthma or one of the new monitoring technologies for him or her. “These costs are deductible to the extent they exceed any increase in the home’s fair market value,” Levy says.
Here’s an example: Say your home is worth $300,000 and you need to add a $10,000 air filtration system. After installing it, your home is appraised at $304,000. In this case, your deduction is $6,000 (the $10,000 cost minus the $4,000 increase in market value).
Tax Credits There are two tax credits you may be able to claim if you cared for someone with a disability or were disabled in 2012: the child and dependent care credit (reported on Form 2441) and the credit for the elderly or the disabled (reported on Schedule R).
You can take the child and dependent care credit ($3,000 maximum) if you paid someone to care for a qualifying dependent who was unable to take care of himself or herself, so you could either work or look for work. (See IRS Publication 503 for more details.)
The tax credit for the elderly and disabled is available to anyone 65 or older who is retired on permanent and total disability and who received taxable disability income and had adjusted gross income below $17,500 ($20,000 for married couples filing jointly with one eligible spouse, $25,000 for couples with both spouses eligible).
You can’t take this credit for your elderly parent, however, even if you will claim him or her as a dependent.
Additional Tax-Saving Information
For more details about tax rules for disabled people, Shenkman says, read the IRS’s online guide, More Information for People With Disabilities, and download its publication Living and Working With Disabilities.
If you still have questions, consult with a tax adviser before April 15.
Linda Childers is a California-based freelance writer who contributes celebrity profiles, travel and health articles to a number of national magazines and websites.