Navigating Tax Season: Essential Strategies for Disability Planning
Maximizing Deductions, Credits, and Tax Considerations for Caregivers and Professional
It’s that time of year again, the tax man cometh. For many of us, this adds one more burdensome chore to an already full plate. It’s no surprise potential deductions and credits are often left on the table. I have yet to find an accounting firm that “specializes” in Disability Planning. More often than not your tax preparer will leave it to you to tell them what additional considerations should be given due to you caring for an individual with disabilities, especially if you go to a chain like H&R Block.
Tax planning is a crucial aspect of Disability Planning. Understanding the available deductions, credits, and other tax considerations can alleviate some of the financial burdens associated with caregiving while maximizing available resources. In March I’m focusing on key tax planning considerations for parents and professionals who care for individuals significantly impacted by disabilities.
Below is an introduction to some of the tax credits and deductions available. There are a lot more than I expected when I started writing this. I will provide a much more comprehensive review of each one for my paid subscribers in the rest of March’s Waypoints.
As a reminder, I am not an accountant and this is not meant as tax advice. I encourage you to work with your tax preparer to see which, if any, of these benefits are right for you.
Person with a Disability
Standard Deduction: If you are legally blind you may be able to claim a higher standard deduction on your tax return.
Gross Income Exclusions: You can exclude some disability-related payments from your gross income.
Impairment-Related Work Expenses Deduction: This deduction covers necessary business expenses for individuals with disabilities that enable them to work. They can also be deducted as Impairment-Related Work Expenses for Social Security when testing to see if you are making enough to meet their “Substantial Gainful Activity” rule.
Elderly and Disabled Tax Credit: If you are a U.S. citizen who is either 65 or older, or you are retired due to a “permanent and total disability” and your disability payments are taxed you could qualify for the Elderly and Disabled Tax Credit.
Medical Expenses Deduction: The IRS medical expense deduction allows you to deduct qualified unreimbursed medical care expenses that exceed 7.5% of your adjusted gross income (AGI).
Saver’s Credit: If you contribute to an ABLE account you own, you may be able to claim a qualified retirement savings contribution credit.
Earned Income Tax Credit: The IRS Earned Income Tax Credit (EITC) is a benefit for working individuals with low to moderate income, designed to reduce the amount of tax owed and potentially result in a refund.
Parent of a Child with a Disability
Dependency Exemption: The IRS dependency exemption allows you to decrease your income subject to tax by a specific amount for each dependent you claim. A dependent can be a "qualifying child" or a "qualifying relative." It's important to note that the deduction for personal and dependency exemptions was suspended for tax years 2018 through 2025 by the Tax Cuts and Jobs Act.
Adoption Credit: You may be able to claim an adoption credit and exclude employer-provided adoption benefits from your income if you adopt a child with disabilities.
Earned Income Tax Credit: The IRS Earned Income Tax Credit (EITC) is a benefit for working individuals with low to moderate income, designed to reduce the amount of tax owed and potentially result in a refund.
Child and Dependent Care Credit: The Child and Dependent Care Credit is a tax credit that allows you to claim a percentage of your qualifying expenses for the care of a child under 13, a spouse, or another dependent while you work. The Child and Dependent Care Credit is different from the dependency exemption.
Medical Conferences: You can count what you pay for admission and travel to a medical conference if it applies to an illness you, your spouse, or your dependent have.
Business Owners
Disabled Access Credit: This is a tax credit for an eligible small business that pays or incurs expenses to provide access to persons with disabilities. The expenses must be to enable the eligible small business to comply with the Americans with Disabilities Act of 1990.
Work Opportunity Tax Credit: The Work Opportunity Tax Credit (WOTC) is a federal tax credit designed to encourage employers to hire individuals who face high unemployment rates or have special employment needs. This includes Disabled Veterans and those receiving Supplemental Security Income (SSI).
Barrier Removal Tax Deduction: Businesses may be able to take an annual deduction for expenses related to removing physical, structural, and transportation barriers for people with disabilities.
Tax planning plays a crucial role in managing the financial responsibilities of caring for someone with a disability. By leveraging available deductions, credits, and tax-advantaged accounts, caregivers can optimize their tax situation while providing the best possible care for their loved ones. Consulting with a qualified tax professional who understands the unique needs of families with disabilities can provide personalized guidance and ensure compliance with tax laws and regulations. With careful planning and attention to detail, caregivers can navigate the complexities of the tax system and maximize available resources to support their loved ones' needs.
Photo by Samuele Galiazzo from Pexels: https://www.pexels.com/photo/hiker-looking-into-the-abyss-from-the-edge-of-a-rock-18615132/