Navigating Your Tax Burden While Coping with ALS

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ALS often causes great financial strain that can add to the stress and worry of tax season. With April 15 looming just over the horizon, we turned to Terri Moreland of Lucas, Moreland & Associates to provide some tips.

ALS and Tax Breaks
“Unfortunately the IRS does not necessarily consider a severe disability or illness to be a reasonable cause for not filing a tax return,” Moreland explains. “If, however, the individual’s income is severely affected by an illness, they can apply to be considered uncollectable, which is a temporary reprieve from tax collection action by the IRS.”

Moreland also reminded us that the IRS only taxes income producers, so if you do not earn taxable income, you most likely don’t need to file.

Know Your Deductions
Nearly all medical treatments and procedures are deductible, but expenses must exceed 10 percent of the taxpayer’s adjusted gross income for those less than 65 years old (7.5 percent if over 65). Transportation expenses (including mileage), glasses, nontraditional medical care, and mental health expenses are all considered deductible.

“A medical bill is considered paid when the doctor or practice providing the service has received their payment,” Moreland continued. “So, if you paid any medical bill charging your card in December of 2014, but didn’t pay the credit card bill until January of 2015, the credit still goes to your 2014 taxes. However, if you received an invoice for treatment provided in 2014 and didn’t pay the doctor until 2015 that would go toward your 2015 taxes.”

What isn’t covered?
Over-the-counter medicines, vitamins, health foods, cosmetic surgeries, and gym memberships are not considered deductible expenses. The general rule of thumb is that if it’s not covered by your insurance, it’s not deductible by IRS standards.

Tax Obligations Regarding Private Nurses and Caregivers
How a caregiver is handled tax-wise primarily depends on the nature of the “business relationship.”

A caregiver is an independent contractor if they are able to decide when and where the work is performed, provide their own equipment, and/or have the flexibility to outsource work to another caregiver. In this case, the family is required to file a 1099 if total compensation exceeds $600 over the course of a calendar year.

If you set the specific terms of employment, the private nurse or caregiver is then considered a “household employee.”  According to the IRS, this means you are responsible for payroll taxes and must also issue a W-2. If the caregiver is hired through an independent agency, person with ALS or the family is not required to issue any forms.

A Few More Things to Keep in Mind

  • Speak with your tax preparer about accelerated benefits rider – ABR for Terminal Illness – which is highly subject to individual details.
  • Tax laws vary from state to state, and anyone with ALS should consult a local tax expert to see if any exemptions apply to them.
  • Reimbursed medical expenses, i.e. veteran benefits, cannot be deducted.
  • Save proof of payment of medical expenses for three years (typical IRS audit period) after filing.
  • Survivors must file a tax return on the behalf of the deceased for income earned in the year a person passes away. If an estate is left behind, refer to your state’s policy on estate and inheritance taxes.

Have More Questions About ALS and Your Taxes?
There are plenty of resources available to get you on the right track.

Many state tax boards offer the option to “live chat” with a representative. The IRS website also provides answers to common questions and lists email addresses where taxpayers can submit questions.

Moreland added, “If for some reason your return is selected for audit or there are issues with your tax return, the IRS offers free taxpayer advocacy services with centers in every state to help resolve your issue.”

Struggling to meet your tax obligation? Know you can set up payment plans to help stretch the burden out over time.

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