Year after year it seems as if tax preparation becomes more complex. New deductions and provisions in the law have to be accounted for and, in many cases, these wrinkles in the IRS code are only understood by professionals.
Because of the number of online tax preparation services, it might seem easy to handle one’s own tax filings. However, many of the programs are not equipped to account for deductions that are available to people with special needs. That, in turn, means that a taxpayer may not be maximizing his or her refund come April 15. In that case, a professional preparer might be of benefit.
Tax preparation for families touched by Cerebral Palsy
What parents who have a child with Cerebral Palsy should know before filing taxes
Every year in late January when the W-2s, year-end bank statements, and other tax documents begin arriving in the mail, many of us begin to feel a sense of dread. Filing taxes can be a hassle; you have to gather all of the tax documents and either try to file taxes yourself or find a tax accountant to do it for you. If you can relate to this feeling, you are not alone; millions of Americans despise tax season.
For a parent of a child with Cerebral Palsy, tax season can be especially challenging. What can be deducted? What expenses can be included? Parents can feel confused and nervous about filing taxes.
There are a few general situations that may make the parent of a child with Cerebral Palsy’s tax return different from other parents’ tax returns:
- Medical Expenses
- Dependency Status
General rule for when medical expenses can be deducted
Jodi Stevens, CPA and owner of Stevens and Associates in Cincinnati, Ohio, handles several tax returns every year for parents with children who have Cerebral Palsy. She states that most medical expenses can be deducted. Specifically, all medical expenses for the child that the parent had to pay out of pocket can be deducted.
Note, for 2012 tax returns these out of pocket expenses are not considered deductible UNTIL they reach 7.5% of the parents’ adjusted gross income. In 2013, the out of pocket expenses are not considered deductible until they reach 10%.
For example, if the parents’ adjusted gross income was $40,000, they could claim any medical expenses for all members of the family, not just the child with Cerebral Palsy, that were over $3,000 (which is 7.5% of the parents’ adjusted gross income). If medical expenses for the year were $5,462, then they could claim $2,462 on the tax return. The medical expenses that equal the first 7.5% of adjusted gross income (in this case $3,000) cannot be deducted.
Unusual medical deductions
While many families will have typical medical expenses such as co-pays, prescription costs and deductible payments, there are other expenses particular to a child with Cerebral Palsy that can be covered under the umbrella of medical expenses including the following:
- machines that help the child with Cerebral Palsy communicate
- therapy the child may receive
- improvements to the home made to help accommodate the child
- help to care for the child medically (if the parents are paying for that out of pocket)
- cost of a dog if the child has an assistance dog that is specially trained
- cost of veterinarian care for an assistance dog
And, there may be more.
How to claim medical deductions
If the family, in 2012, has medical deductions totaling more than 7.5% of the parents’ adjusted gross income, they should complete a 1040 tax return.
Remember, the medical expenses are claimed in the year they are paid, not necessarily in the year that they are provided. For instance, if a child received medical services in October, 2011 but the parents did not pay for the said medical services until February, 2012, the medical expenses would be included in 2012’s tax return.
What is important is that the parents count the expense in the year that they paid, which may or may not be the same year the child received services.
Most parents can claim their children on their tax return until the child turns 18, assuming the parents provide the majority of care for their child
For parents of an adult child with Cerebral Palsy, though, the rules are different. They can claim their child as a dependent for life, as long as the dependent adult child is living in the home. However, the child can’t have earned more than $3,800 in gross income or the adult child will need to file his own income tax return and cannot be claimed as a dependent. Keep in mind the income limit changes every year, which is why parents should check with a certified public accountant.
Dependent care credit
In addition, all parents can receive a dependent care credit on their federal tax returns until their child is 13 if they pay someone to watch the child so they can work or look for work. (However, if the parent is looking for work in the given year and does not find a job and has no income, the dependent care credit cannot be claimed.)
Again, though, for parents of a dependent adult child with Cerebral Palsy, there is no limit on age.
For those filing their 2012 taxes, the dependent care credit is offered on a sliding scale based on the parents’ income. Those who make less than $15,000 can claim 35% of the amount they paid for dependent care, but those who make $43,000 or more can only claim 20% of the amount they paid for dependent care, not to exceed $3,000.
To qualify for the dependent care credit, the caretaker cannot be the spouse, parent of the child, or the taxpayer’s child who is under 19 at the end of the tax year. However, the caretaker can be another relative.
To claim this credit, the parent must use Form 2441, Child and Dependent Care Expenses.
The above information is not intended to be all-inclusive or comprehensive. Every individual’s tax considerations are unique to their individual situation and circumstances. Finances, tax laws, and procedures are complicated and ever-changing. Caring for a child with special needs can lead to significant medical expenses, special or supplemental schooling, in-home assistance, and transportation expenses that may qualify individuals for tax benefits.
While some taxpayers do just fine filing their own taxes using a software program, Stevens cautions against this for parents who have a child with Cerebral Palsy. Finances, tax laws, and procedures are complicated, hiring a professional tax preparer is advised.
Because there are so many different rules that apply to the taxpayer who has a child with Cerebral Palsy, Stevens recommends that they have a certified public account file their taxes. That way the parents can be sure they have received all the possible credits and deductions they are eligible for and prepare for the changes in the upcoming year. When interviewing potential CPAs, ask about their experience and comfort level in preparing tax returns for families touched by Cerebral Palsy.
Tax attorneys and certified public accountants, or CPAs, offer personalized tax assistance and determine applicable file deductions and credits. Whether the taxpayer or a paid preparer completes a tax return, the taxpayer is ultimately responsible for the information submitted to the Internal Revenue Service, or IRS.
A qualified tax preparer can help consumers avoid deficiencies, penalties, interest, and excessive taxes. Even though the government is working on future regulations and recommendations, very few states require licensure for paid tax preparers. Unqualified or dishonest preparers may cause excessive, unforeseen, and avoidable tax expenses. Seeking the assistance of a tax preparer that has experience with special needs situations can be beneficial.