Coping with disability is a fear common to many clients. Living with impairment or taking care of someone who is disabled can be an expensive proposition, both in terms of the direct costs of care and in some unexpected areas.
If your client, his spouse or one of his dependents has a disability, then there are some important potential tax credits and deductions of which advisors should be aware to help ease the burden. A recent article from Special Needs Answers offers five “Tax Deductions and Credits For People With Disabilities And Their Families.” They are:
Deductible Medical and Dental Expenses. Generally, those under the age of 65 can deduct medical or dental expenses that exceed 10 percent of adjusted gross income (AGI). For those over 65, the threshold drops to 7.5 percent. A (non-exhaustive) list deductible expenses is available here.
Deductible Impairment-Related Work Expenses. Clients with disabilities are able to deduct the entirety of any expenses incurred to purchase good or services in order to do one’s job. Here there’s no percent of AGI threshold. If your client is self-employed, then these expenses may be included as business expenses on his tax return. Otherwise, the client will have to itemize. (See above link)
Child and Dependent Care Tax Credit. If, in order to be able to work or look for work, your client must pay for care for a child under the age of 13 or a spouse who is physically or mentally incapable of self-care, then the client may be entitled to a tax credit of up to 35 percent of the expense. The IRS definition of "physically or mentally incapable of self care is " An individual ... if, as a result of a physical or mental defect, the individual is incapable of caring for his or her hygiene or nutritional needs, or requires the full-time attention of another person for the individual's own safety or the safety of others." Under certain circumstances, this credit can also apply to dependents or a person who lived with the taxpayer and could have been claimed as a dependent, but wasn't.
Elderly or Disabled Tax Credit. If your client is 65 or older, or if he’s under 65 and retired on permanent or total disability, then he’s entitled to a small tax credit based on a variety of factors, including AGI and non-taxable Social Security Benefits. Qualification for this deduction is more complicated than it seems, but the IRS provides a handy flow chart to help out:
Earned Income Tax Credit. If your client’s AGI is low, then he may qualify for this tax credit. In order to qualify in 2015, he must make less than $14,590 if single with no children, $20,020 if married and filing jointly with no children and between $39,131 and $53,267, depending on marital status and number of children. Qualifying “children” must be under the age of 19, full-time students under the age of 24 or permanently and totally disabled.
In addition to those already mentioned, the IRS offers links to various other relief options available for those struggling with disabilities.
Regardless of if you’re the one doing the actual tax planning (as with anything tax-related, determining the actual value of these credits and deductions can be maddeningly complicated, so is best left to a tax professional), advisors should familiarize themselves with the existence of these options in order to best be able to maximize the tax savings for clients who are already struggling with other burdens.