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Income tax tips.

Exemptions for dependents

Taxpayers are entitled to a deduction of $2,500 for each "dependent." A person qualifies as a dependent if she or he is related to the taxpayer and if the taxpayer provides more than half of that person's financial support. "Support" is not defined only as necessities, so money spent on gifts and allowances also count toward support. A dependent cannot earn a yearly gross income of more than $2,500. However, if the dependent is under the age of 19 or a full-time student under the age of 24, this income test does not apply. When parents claim a child as a dependent, the child cannot claim a personal exemption when filing his or her own tax return.

Medical Expense Deduction

Taxpayers may deduct unreimbursed medical expenses for themselves and their dependents. Even if your child cannot be claimed as a dependent, if you provide more than half of his or her support, you may still deduct medical expenses. These expenses include health insurance premiums and any medical expenses not reimbursed by health insurance. Parents may take medical expense deductions only if medical expenses are itemized on Schedule A, form 1040 (the long form) and if those expenses exceed 7.5 percent of their adjusted gross income.

"Medical expenses" are defined broadly to include amounts paid for "the diagnosis, cure, mitigation, treatment or prevention of disease, or for the purposes of affecting any structure or function of the body." It is easy to recognize the usual expenditures--doctor visits, hospital stays, wheelchairs--as deductible; but a wide array of other costs can also be deductible, as long as the taxpayer can document that a doctor has "prescribed" the item as "medical necessary." Medical deductions that might be overlooked include:

* Capital expenditures to modify a home: The deductible amount is the amount of the cost that exceeds the increase in the value of the home, if any, resulting from the modification. Modifications that do not increase the value of the home are fully deductible.

* Special education and training costs: A deduction is allowed for the cost of attending a special school if the child's medical condition is such that the school's specialized resources are a principle reason for the child's attendance.

* Other "medically necessary" expenses related to a child's disability: These may include transportation and from therapies, specialized toys and computer equipment, television or telephone equipment for individuals with hearing impairments, diapers for an older child who is incontinent, even the cost of a subscription to Exceptional Parent or other specialized publications.

By attaching a doctor's letter explaining your child's disability and listing the items that are "medically necessary," as well as attaching documentation for any unusually high expenses you deduct, the IRS is less likely to question medical deductions or subject you to an audit Never send originals and always include your name and social security number on anything you attach to your return. Remember that audits can go back as many as seven years--so save all of your receipts and former tax returns related to deductible expenses.

If you have missed deducting a medical expense on a previous tax return, you may file an Amended U.S. Individual Income Tax Return (form 1040X).

Tax Credits

Tax credits are more beneficial than deductions because they are deducted from taxes due, thus decreasing your tax bill directly.

* Child and Dependent Care Credit: The credit is for 20-30 percent of your child care expenses, with a limit if $2,400 for one child, or $4,800 for two of more children. To qualify, your dependent must be under the age of 13 or, if older, must be physically or mentally unable to care for himself or herself. You must have paid child and dependent care expenses in order to work, look for work or go to school. To take this credit, file either form 1040 or 1040A.

* The Earned Income Credit: To qualify, you must meet one of the following criteria: have two or more qualifying children living with you and an adjusted gross income less than $26,673; have one qualifying child living with you and an adjusted gross income less than $24,396; or, if you do not have a qualifying child, your adjusted gross income must be less than $9,230. A qualifying child does not have to be a dependent; however, the child must meet the requirements of relationship, residency and age outlined in the Earned Income Credit publication. You may claim this credit using any tax form. If the credit exceeds the amount of tax owed, you can get a refund.

RELATED ARTICLE: Where to get free help

The IRS provides free tax services throughout the year. Call (800) 829-1040, voice, or (800) 829-4059, TTY, for scheduled hours. Certain tax materials are available in Braille; for information on Braille materials, contact the National Library Service at (202) 707-5100.

To order free IRS publications, call (800) 829-3676.

The following publications may be especially helpful:

* Publication 17: Your Federal Income Tax

* Publication 501: Exemptions, Standard Deduction and Filing Information

* Publication 502: Medical and Dental Expenses

* Publication 503: Child and Dependent Care Expenses

* Publication 524: Credit for the Elderly or Disabled

* Publication 596: Earned Income Credit

* Publication 929: Tax Rules for Children and Dependents
COPYRIGHT 1996 EP Global Communications, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1996 Gale, Cengage Learning. All rights reserved.

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Title Annotation:for families with exceptional children
Publication:The Exceptional Parent
Date:Feb 1, 1996
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