QUEST Volume 11, Number 2, MARCH/APRIL 2004

by Christina Medvescek

"Anything you had to buy that your next-door neighbor didnt have to buy is probably a tax deduction."

Thats the basic test that Armand Legault, a former auditor for the Connecticut Department of Revenue Services, advises taxpayers with neuromuscular diseases to apply to the question: "Is this deductible?"

Did you need extra electricity to run a BiPAP at night in 2003? Have to pay extra for an accessible van? Did you have to remodel your bathroom or build a ramp? Send your child to a special school? Hire someone to help you get dressed in the morning? Write it all off.

"If you had no choice in the matter, thats the key," says Legault, who spent 33 years as a state tax auditor, and who now gives tax seminars for people with disabilities, certified public accountants (CPAs) and other tax preparers. Legault, of Newington, Conn., has spinal muscular atrophy and was MDAs 1992 Personal Achievement Award winner for Connecticut.

Are most people with disabilities aware of the tax breaks they can claim?

"Oh gawd no!" laughs Legault. For example, he says, many working people with disabilities have no idea of the wealth of deductions available to them as "impairment-related work expenses." (See instructions in IRS Publication 502, listed in "Tax Help Resources.")

A Gold Mine

As an incentive to keep people with disabilities working, the federal government allows full- and part-time workers to deduct unreimbursed business expenses "that are necessary for you to work." To qualify, you must have an impairment "that substantially limits one or more of your major life activities, such as performing manual tasks, walking, speaking, breathing, learning and working."

These business deductions are more valuable than medical deductions because every penny is deductible, whereas medical expenses must exceed 7.5 percent of your adjusted gross income before they can be deducted. (Adjusted gross income, or AGI, is the total of your income, minus a few adjustments. Its the figure listed on line 34 of your 1040 form.)

In addition, unlike standard business expenses, disability-related business expenses arent capped at 2 percent of AGI. This means, says Legault, "If it comes out of your pocket and it is required in order for you to be an employable person, you can deduct it as a nonreimbursed employee expense.

"Its a gold mine for people who are working."

These deductible expenses include:

Home accessibility remodeling required for work, such as a roll-in shower or a lowered kitchen sink (because you cant go to work dirty or hungry), or a ramp (because you cant go to work if you cant leave the house) The cost of a personal care attendant who helps you get ready for work or helps you at work

The unreimbursed purchase, repair and maintenance of equipment necesary to get you up, out of the house and working productively, such as a lift, wheelchair, shower chair or BiPAP

The extra cost of electricity required by such equipment

The food, grooming and medical care costs of a service animal

Specially adapted work equipment you buy yourself, like a special computer keyboard

Meals and extra expenses for a live-in attendant. Although your meals arent deductible (your next-door neighbor has to buy food, too), if your live-in assistant helps you get ready for work in the morning and you provide breakfast as part of his or her compensation, the cost of that food is a business expense. Additional utility expenses also may be considered under this category. Legault had this arrangement with three live-in assistants before he retired.

	Armand Legault

Transportation costs can be a huge tax-saving bonanza for many disabled employees, amounting to several thousands of dollars in deductions.

For example, if you drive a modified or accessible vehicle, you may deduct your daily mileage to and from work (currently 36 cents a mile, compared to 12 cents a mile for medical mileage).

You must be able to show that you cant use some other form of transportation, like a regular car, bus or carpool, due to your disability (or because theyre not available).

(Another little-known fact: About 70 percent of states offer a break either on local property tax or vehicle license fees for accessible and modified vehicles, Legault notes.)

Even if you dont drive, you can deduct the cost of hiring special transportation to get to work, such as an accessible van service.

You could even buy your own van and hire someone to drive you to and from work, and deduct the extra cost of the accessible vehicle, mileage and the cost of the driver, Legault says.

Gray Area

Legault warns, "Most CPAs and tax preparers are unaware of this whole thing. They only think in terms of medical deductions. No! This is better."

One reason for the confusion is that impairment-related work expenses are a vague, gray area in the tax code. Legault, who supervised tax auditors for years, recommends making good use of the absence of strict definitions.

"If you can prove that you need it to work thats the key. Your doctor says you need it or you can show you cant work without it then take it [as a deduction]!"

He notes that, in the absence of clear definitions, IRS auditors arent on solid ground either. If you believe strongly that you deserve the deduction and arent taking advantage of the system, "argue that youre an employee and you need this to work," he advises. "Youll win."

Medical Deductions

If youre unemployed, or if the person with neuromuscular disease is your child, spouse or dependent, then youre looking for medical rather than business deductions.

You may deduct out-of-pocket, unreimbursed medical expenses that exceed 7.5 percent of your adjusted gross income. For example, if your AGI is $30,000, and you had $5,000 in medical expenses, you may deduct expenses over $2,250 (7.5 percent of AGI), leaving you $2,750 in deductions. These expenses must relate to the "diagnosis, cure, mitigation, treatment or prevention of disease."

Medical deductions include such standard items as:

health insurance premiums

prescription and doctor or therapy costs not covered by insurance (unreimbursed)

medical equipment purchase or repair

home accessibility remodeling

transportation and lodging costs for approved medical or therapy appointments.

Providing you meet the requirements outlined by the IRS and have proper documentation from a physician, the following also count as medical expenses:

The extra cost of electricity and/or batteries for lifts, wheelchairs and respiratory equipment, as well as maintenance costs for these items

The extra cost of a wheelchair-accessible vehicle (compared to a standard vehicle), or the cost of modifying an existing vehicle

Transportation and admission to conferences specifically about your disease (but not meals and lodgings)

Expenses for an acupuncturist or Christian Science practitioner

Unreimbursed plumbing modifications made on a home you rent (i.e., installing a roll-in shower)

Some special education costs, such as a tutor specializing in learning disabilities caused by a medical condition, or the cost of a special school that provides medical care

Yard and housework expenses for chronically ill individuals (those who need help with at least two activities of daily living, such as eating, toileting, transferring, bathing or dressing)

Higher expenses due to having a live-in attendant, such as the increased rent of a two-bedroom apartment, or higher utility or food costs

The cost of acquiring, feeding and caring for a service animal

The extra costs of a doctor-prescribed special diet or feeding tube formula

The cost of nonprescription supplements recommended by a doctor (such as coenzyme Q10), providing theyre prescribed specifically to treat your condition and not just for general health

The cost of a swimming pool, providing you have a doctors prescription and can justify that the pool is mainly for therapeutic use

Personal attendant care services

Attendant Care Expenses: Credit or Deduction?

If attendant care costs are for a child, spouse or other nonemployed dependent, taxpayers have two choices: Claim the cost as a medical deduction or take a child/dependent care credit (see IRS Publication 503).

A deduction lowers the amount of income on which youre taxed, indirectly lowering your taxes. A credit is a direct dollar-for-dollar reduction in tax e.g., a $100 credit lowers your tax $100.

You can claim attendant care expenses as either a credit or a medical deduction, but not both. (However, if you choose the credit, any attendant care costs in excess of the credits limits may be claimed as medical deductions.)

To qualify for the child/dependent care credit, the care recipient must be a child under 13 or someone unable to either physically or mentally care for himself without attendant care. In addition, the care must be provided so that the taxpayer(s) can work or look for work. The credit ranges from 20 percent to 35 percent of expenses, up to $3,000 a year ($6,000 for two or more qualifying people).

In general terms, a credit is better than a medical deduction. But because tax savings vary depending on a variety of factors, especially the income of the taxpayer, do the math to see which approach would save you more.

Back It Up

Keep all relevant prescriptions, doctors letters, receipts, credit card statements and cancelled checks. Make sure prescriptions specify that the expense is to mitigate the effects of your neuromuscular disease, not just for general health.

If youre claiming the cost of an item such as extra electricity or food, be sure to have receipts and records that show the price discrepancy. You dont need to turn these in to the IRS, but should keep them on file in case youre challenged.

If you missed taking a deduction or credit in a previous year, you can file an amended tax return for up to three years after the purchase, using IRS Form 1040X.

Explore all your tax options, Legault recommends. Dont assume professional tax preparers are aware of all deductions available to you; carefully outline the specifics of your unique situation for them and dont be afraid to do your own taxes.

Not every taxpayer affected by a neuromuscular disease can benefit from tax deductions, but its a shame to miss out if youre eligible, he says.

"Its due you. Why should you have to buy this expensive van or wheelchair that your neighbor doesnt have to buy? Fight for your cause!"

What Is a Tax Deduction? A tax deduction is any expense a taxpayer is legally allowed to subtract from his or her taxable income. The smaller your taxable income, the less money you owe in taxes. You can deduct such items as: state and local taxes, charitable contributions, mortgage interest payments, and business and medical expenses. The government automatically allows each taxpayer a standard deduction, which in 2003 is $4,750 for a single person and $9,500 for those who are married and filing jointly. In order to benefit from itemized tax deductions, they must add up to more than your standard deduction. Otherwise, its wiser to just take the standard deduction.

Tax Help Resources IRS Publications These publications are available online at www.irs.gov or by calling (800) 829-3676. Medical and Dental Expenses, Publication 502. Outlines what is and isnt deductible as a medical expense or impairment-related work expense. Tax Highlights for Persons with Disabilities, Publication 907. Gives a brief introduction to tax laws of interest to people with disabilities and caregivers. Child and Dependent Care Expenses, Publication 503. Tells who qualifies and how to figure and claim this credit. Credit for the Elderly or the Disabled, Publication 524. Outlines who is eligible for this credit, and how to determine and claim it. Internal Revenue Service Programs (800) 829-1040 Tax Counseling for the Elderly (TCE) and Volunteer Income Tax Assistance (VITA) provide free federal, state and local income tax assistance for lower-income, elderly and disabled taxpayers. Taxpayers with incomes under $60,000 may take advantage of the service, provided their returns are "simple." Volunteers are trained to prepare basic forms and forms claiming credits such as the earned-income credit and the child credit. AARP Tax-Aide (888)227-7669 www.aarp.org/taxaide This free program operates under a cooperative agreement with the IRS. Its available to help prepare tax returns and answer questions for people of all ages with middle and low incomes, with a special emphasis on those over 60. Volunteers are trained and certified by the IRS and are stationed at more than 10,000 sites around the country. Home visits also are available. The program is available from Feb. 1 through April 15.