Summary
Tax planning is an essential part of financial planning for families who are raising a child with special needs, so read on to learn about valuable strategies.
Minimize Your Tax Liability Through Proper Planning
Raising a child with special needs comes with unique financial challenges, and tax planning is can be an essential part of managing your family’s resources efficiently. Unfortunately, many of the tax-saving strategies available to special needs families are often overlooked or misunderstood. With proper planning, however, you can help minimize your tax liability and maximize your overall financial position.
Here are some key tax planning strategies to consider for families with special needs:
Take Advantage of the Medical Expense Deduction
As a parent of a child with special needs, medical expenses can take a toll on your day-to-day cash flow. But the good news is that you may be able to offset some of these costs by claiming the medical expenses tax deduction. Eligible medical expenses include typical items like doctor’s visits, prescription medications, and medical equipment, but there are also niche items that can make this deduction particularly advantageous for families with special needs.
- “Special” Schools: If your child attends a private school, the tuition, lodging, and meals may be partially or fully deductible as a medical expense if the school provides curriculum specific to helping your alleviate the symptoms of your child’s disability.
- Medical Conferences & Seminars: Both transportation and conference fees are deductible if the conference is recommended by a physician, and it is specific to your child’s disability.
- Special Diet Foods: If your child is on a prescribed special diet, the cost difference of the special diet over and above normal food may be deductible.
- Prescribed Alternative Therapies: Summer camps, art, dance, and equestrian therapies are tax deductible if recommended by a physician.
- Medical Travel & Transportation: In 2023, medical travel is deductible at 22 cents per mile.
- Capital Costs and Home Improvements: If you make structural changes or home improvements as recommended by a physician (for instance, installing an elevator or chair lift), your costs could be partially or fully deductible as a medical expense.
If you’re unsure whether a particular expense is deductible, consult with a tax professional.
Keep in mind that there are some restrictions on this deduction. You can only deduct medical expenses that exceed 7.5% of your adjusted gross income (AGI) for the year. Additionally, you can only deduct expenses that you paid out-of-pocket, not those covered by insurance or other sources.
It’s also important to note that the medical expenses tax deduction is an itemized deduction, meaning you must choose to itemize your deductions instead of taking the standard deduction. For some taxpayers, the standard deduction may be more beneficial, so it’s important to evaluate your specific situation to determine what works best for you.
Consider Retirement Planning
As a parent of a child with special needs, it’s important to plan for your own retirement in addition to planning for your child’s future. taking advantage of available retirement plans, such as 401(k)s and IRAs, is one way to maximize your savings and minimize your tax liability.
With tax-advantaged retirement accounts, you can contribute pre-tax dollars that will allow you to lower your taxable income. In 2023, you can contribute up to $22,500 (or $30,000 if over the age of 50) to a 401(k), and $6,500 (or $7,500 if over the age of 50) to an IRA. The lower your taxable income, the lower the AGI threshold before you can start deducting medical expenses. By combining these two strategies, you can reduce your tax bill even more and keep more of your money in your pocket.
Contribute to an FSA
A Flexible Spending Account (FSA) is another type of tax-advantaged account that allows you to set aside pre-tax dollars to pay for qualified medical expenses. This is another strategy parents can use to save for things like deductibles, copays, coinsurance, and other out-of-pocket expenses while reducing your taxable income. The 2023 annual contribution limit is $3,050. Keep in mind that only $610 is allowed to roll over at the end of the year, so most if not all of your FSA funds should be spent each year. Check with your employer to see if you are eligible for an FSA.
Work with a Tax Professional on Special Needs Planning
Families with special needs must plan for their child’s financial future, including setting up special needs trusts and understanding eligibility for government benefits. These plans can have significant tax implications, and working with a tax professional who understands the unique challenges and benefits of special needs planning can be invaluable.
At Aviance Capital Partners, we can help organize your finances and develop tax planning strategies specific to your situation. We can also coordinate with your CPA or another tax professional to help you make the most of your return.
If you are the parent or guardian of a child with special needs and would like more information about our financial planning services, please click here to schedule a call, or email wealthrelations@aviancecapitalpartners.com.
Aviance Capital Partners, LLC (“ACP”) is an SEC registered investment adviser located in Naples, Florida. Registration as an investment adviser is not an endorsement by securities regulators and does not imply that ACP has attained a certain level of skill, training, or ability. While information presented is believed to be factual and up-to-date, ACP does not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. Not all services will be appropriate or necessary for all clients, and the potential value and benefit of the ACP’s services will vary based upon the client’s individual investment, financial, and tax circumstances. The effectiveness and potential success of a financial plan depends on a variety of factors, including but not limited to the manner and timing of implementation, coordination with the client and the client’s other engaged professionals, and market conditions. The tax and estate planning information provided is general in nature, which should not be construed as specific financial planning or tax advice tailored to an individual reader. ACP suggests that readers consult a financial professional, attorney or tax advisory professional about their specific financial, legal or tax situation. Customized financial planning indicates that financial planning will be informed by the material financial and investment circumstances of the client, as communicated by the client to the adviser, but may not consider literally all aspects of a client’s financial affairs. Past investment performance does not guarantee future results. All investment strategies have the potential
