PARENTS OF CHILDREN WITH SPECIAL NEEDS ENTITLED TO INCOME TAX BENEFITS

1. PARENTS OF CHILDREN WITH SPECIAL NEEDS ENTITLED TO INCOME TAX BENEFITS PRESENTED BY: Cynthia Sharp Sharp Bratton Attorneys at Law

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

3. INCOME TAX BENEFITS • Deductions or credits • Medical Expenses • Special Instruction • Impairment-related work expenditures • Earned income tax benefit

4. MEDICAL EXPENSE DEDUCTION • General rule • Expense must exceed 7.5% of TP AGI • Must itemize

5. 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

6. 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

7. EDUCATION • Cost of traditional education not deductible • Not medical care

8. 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

9. EDUCATION (MEDICAL EXPENSE) • Regular School can be classified as “Special School” for individual • School must have special curriculum for mentally disabled individual

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. EXEMPTION FOR DEPENDENTS • Exemption is $3,500 for 2008 • Phased out if AGI exceeds • $159,950 (if single) • $239,950 (if married filing joint)

22. 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

23. 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

24. 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)

25. 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)

26. EARNED INCOME TAX CREDIT • Residency test • Resided with the taxpayer for more than six months during the calendar year • Publication 596

27. 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)

28. 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)

29. CREDIT FOR SPECIAL NEEDS ADOPTION EXPENSES • Must be U.S. Citizen or resident and requiring adoption assistance • Limit is per child, not per year

30. 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

31. 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

32. 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

33. 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

34. 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

35. RETROACTIVE CLAIM FOR REFUNDS • Unclaimed tax benefits • File amended returns and collect refunds retroactively for up to 3 years

36. ANY QUESTIONS??