Practical Considerations – Taxes

Note: Tax law is constantly changing. As such, it is important to consult a tax practitioner for the latest updates. If you haven’t filed your return yet, given taxes are due soon, they may recommend that you file an extension until you’ve gathered all necessary information.

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When we placed our daughter, I can assure that taxes were not even a concern. When we first began addressing this, our general impression was that, other than the obvious – therapy bills, doctors, etc. for tax purposes, all other program costs would not be deductible. It was not until later when a friend wrote us telling us that the program his daughter was attending had given him some tax related information that we focused on taxes.

What we learned was that the key to expenses to be deductible appears to be:

Whether your son or daughter is your dependent

This may seem obvious but I thought that I would put this in just in case any of you where in the midst of any legal battles – I am sorry if you are.

Whether the expenses are eligible expenses under Schedule A – Medical Expenses (see publication 502).

As you may know, to deduct medical expenses these expenses need to exceed 7.5% of your Adjusted Gross Income (AGI). Thankfully, I have rarely passed this test. Given the costs of these programs, during the time our daughter attended programs, we exceeded the AGI test.

With this as a backdrop, I was surprised to find was that there was a provision for drug & alcohol therapeutic centers in publication 502. This provision includes meals and lodging provided by the center during treatment – this made the difference. Given this, below are some expenses that I recommend keeping track of:

• Medical/Dental/Orthodontist/Opticians, etc. – these are usual expenses, the trick is that these are now done at a distance for your son/daughter and probably charged to your credit card. If applicable, include travel to and from these service and any additional expenses (glasses, etc.)
• Wilderness Program Cost – if not already done, please request that the wilderness program split out costs such as gear, clothing etc.
• Therapeutic Boarding School/Residential Treatment Center – please request that the program split out costs such as student allowance account if applicable, supplies, etc.
• Ed Consultants fees –if not already done, please request that all bills be split – as an example our fees included testing
• Transport services – if not already done, please check with you tax accountant on this.
• Travel Expenses – include trips to go visit your son/daughter. This includes hotel, airfare, airport parking expenses, and car rental expenses but does not include food.
• Therapy outside the program – e.g. family therapy at home

Expenses that were not deductible include but are not limited to:

• Any cost for uniform like clothing that the program required (e.g. sweatshirts with logo)
• Regular clothing and shoes that the program requires you provide (e.g. jeans, running shoes, underwear, etc.)
• Special gear (e.g. sleeping bag, horse back riding boots)

A final note is to be reasonable. Our tax accountant, warned us against excessive expense deductions as the IRS disapproves of these and will more likely challenge these.

Who paid the bill

I mention this only because when our daughter went away, I’d been in a long term committed relationship for 12 years. Because we are unmarried, for tax purposes, my partner can claim no expenses incurred on our daughter’s behalf on his tax returns – this part was not a surprise to us. What could have been a problem was that I had thought that most of the expenses were not deductible and, therefore, who paid them made no difference. Luckily, with the exception of some travel costs (we attended parents therapy weekends together), I had paid all other expenses. What I did have to do, however, was split out all cost related to my partners visit as these were not deductible.

Lastly, please remember that you will need to add back any reimbursement that you get back from your insurance company (see Practical Considerations – Insurance Billings).

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As always, should anyone have any other information that would be useful please feel free to comment.