Tax season can be scary and confusing. But if you or a family member has a special circumstance such as a physical disability, it can be doubly so. If you're in this situation, what should you know to make your taxes better and cheaper? Here are 4 tax time tips just for you.
Exclude Some Disability Income. Disability income may or may not be taxable, depending on its source and your circumstances, so it's important to understand the differences. Generally, disability payments from your employer are taxable only until the normal retirement age. Supplemental Security Income and Veterans Administration benefits are generally not taxable, as are some Medicaid payments.
Claim Medical Expenses. Be sure to keep receipts for any medical expenses (including the mileage!) you incur due to your disability. These may lower your taxes. Examples of qualified medical expenses many disabled taxpayers incur include doctors, hospitals, prescriptions, tutoring or special schools, therapy, some service animal costs, artificial limbs, insurance premiums, and nursing care. You may also be able to deduct permanent improvements to your home—such as ramps, elevators, widening of doors or lowering of cabinets, or grading changes in the property—if made primarily for the care of the disabled person.
Check for Credits. Several credits could potentially benefit a family with a disabled member. If you must pay for care for a disabled dependent while you work, you may be able to claim the Child and Dependent Care Credit. In addition, the Credit for the Elderly and Disabled may reduce your tax bill if you earned less than $17,500. Low-income families with a permanently disabled dependent child (of any age) may also qualify for the Earned Income Tax Credit.
Set Aside Money. In 2014, the ABLE Act established that states could create tax exempt accounts (commonly called ABLE Accounts) that are similar to 529 accounts to pay for disability-related expenses without worrying about assets disqualifying the disabled person from receiving SSI or Medicaid. You or anyone else may contribute up to $14,000 (the gift tax exclusion) annually to this account.
As you navigate the murky waters of your income taxes when a disability is involved, you may want to work with a professional accountant or income tax preparation service with experience dealing with clients in your circumstances. And while some effort will be required, the result could be a boon to your family's finances just when you need it most.