Tax Tips for Special Needs Families
by Sequoia Financial Group
by Sequoia Financial Group
Organizing tax documents can be daunting, especially for families with members with special needs who know the cost of care is substantial. However, with proper planning, you can likely reduce these costs by maximizing your tax strategies.
What tax credits may be available to me?
Depending on your income and your dependent’s age and income, you should look into the following tax credits:
- Child tax credit –This credit is $2,000 for each qualifying child under 17 for 2024.
- Dependent Care – Up to 35 percent of daycare expenses are incurred while the taxpayer works or seeks employment.
- Earned Income Tax Credit – For low- to moderate-income families with children under 19 (up to age 23, if children are full-time students). This also applies to adults with disabilities who work.
- Elderly Disabled – For individuals 65 or older who are filing income taxes.
- Disability income from a previous employer’s benefit plan – Eligibility depends on income level.
- Other dependent tax credit — A credit of $500 may be available for dependents, other qualifying relatives, and even qualified dependents who are not related to the taxpayer, age 17 and older (including parents/grandparents).
- Qualified retirement savings contributions credit — For contributions to ABLE accounts by designated beneficiaries.
Can I deduct medical expenses?
Deductible medical expenses include prescription drugs, over-the-counter insulin and/or syringes, dental costs, psychological or psychiatric services, premiums paid for Medicare Part B, and the cost of guide dogs, wheelchairs, etc. However, don’t forget about the often-overlooked deductions listed below.[1]
- Medical travel and transportation: The cost of travel to a medical facility, not including trips to improve general health, is deductible. If you use your automobile, you may deduct a certain amount based on miles traveled.
- Special schools: If your child attends a qualifying special school, you may deduct the entire unreimbursed cost as a medical expense. In addition to tuition, the costs can include lodging, meals, transportation, incidental education costs, supervision at the school, treatment, and training. Private tutoring expenses may also qualify.
- Capital expenditures: If a physician recommends that a capital improvement be made to your home for medical reasons, you may deduct the cost over the increase in your home’s fair market value (FMV). The total cost may be deductible if the recommendation is to remove structural barriers.
- Nursing home and long-term care: Expenses incurred in a nursing home or long-term care (LTC) facility are deductible if you are chronically ill or the facility is primarily for medical care. In most cases, facilities mainly provide custodial care. The medical care component may be deductible if separately stated on the bill. You may also deduct a portion of the cost of LTC insurance premiums.
What about our Special Needs Trust (SNT)?
Special needs trusts (SNTs) and Health Savings Accounts (HSAs) are important financial and tax planning tools that significantly contribute to a person’s quality of life.
The investment income generated by SNT-held funds doesn’t affect eligibility for means-tested government benefits; however, it is taxable.[2] The tax rate of the SNT varies depending on how the trust is structured, which is why it’s essential to work with a knowledgeable special needs financial planner to minimize the tax implications of your SNT.
Conclusion
Tax planning is complex, and with regulations changing so frequently, it can feel like you’ll never be able to maximize your tax strategy. Don’t panic; instead, contact Sequoia Financial Group, where our Special Needs Financial Planners can assist you in getting ready for tax season.
Sources:
The views expressed represent the opinion of Sequoia Financial Group. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and nonproprietary sources that have not been independently verified for accuracy or completeness. While Sequoia believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sequoia’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in equity securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. Past performance is not an indication of future results. Investment advisory services offered through Sequoia Financial Advisors, LLC, an SEC Registered Investment Advisor. Registration as an investment advisor does not imply a certain level of skill or training.
This material is for informational purposes only and is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Diversification cannot assure profit or guarantee against loss. There is no guarantee that any investment will achieve its objectives, generate positive returns, or avoid losses. Sequoia Financial Advisors, LLC makes no representations or warranties with respect to the accuracy, reliability, or utility of information obtained from third-parties. Certain assumptions may have been made by these sources in compiling such information, and changes to assumptions may have material impact on the information presented in these materials. Sequoia Financial Advisors, LLC does not provide tax or legal advice. Information about Sequoia can be found within Part 2A of the firm’s Form ADV, which is available at
https://adviserinfo.sec.gov/firm/summary/117756
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