Financial Planning > Tax Planning > Tax Deductions

Three critical tax steps for disabled clients

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As April 15 looms, taxpayers are looking for ways to keep more of their money in their wallets and out of Uncle Sam’s. Allsup, a nationwide provider of Social Security disability representation and Medicare services, offers three critical steps to help your clients prepare for tax season.

Understand how SSDI and other benefits are taxed. According to Allsup, up to 50 percent of monthly SSDI benefits can be taxed. Taxes are owed on any amount above the base level of $32,000 for couples and $25,000 for individuals. Paul Gada, a tax attorney and personal financial planning director for the Allsup Disability Life Planning Center, notes that the average monthly benefit in 2009 was less than $1,100, well below the base level. He adds that disabled clients should still file a return to take advantage of available deductions, though.

It can take up to four years to receive benefits, according to Allsup, sometimes resulting in a lump-sum payment of benefits. Taxes on that payment can be spread over previous tax years without filing an amended return.

Look at tax credits that provide a “dollar-for-dollar tax reduction” or refund. If any of your clients received disability income from a former employer, and their adjusted gross income for 2009 is under $17,500 for single filers ($20,000 for joint filers with one eligible spouse and $25,000 for joint filers with both spouses eligible), they may be eligible for a credit up to $7,500.

Use deductions to lower taxes even more. Medical expenses that exceed 7.5 percent of your client’s adjusted gross income can be deducted, including medical and dental costs, travel expenses for treatment, long-term care insurance, medical insurance premiums, and costs for certain equipment for those with visual, hearing and physical disabilities, according to Allsup. Visually impaired taxpayers may be eligible for a higher standard deduction.

Additionally, clients who get professional help claiming SSDI benefits may be able to claim fees as itemized deductions, according to Allsup.