It's Tax Season ... Here's a Lesson On SNT's And Deductible Medical Expenses

Jan 5, 2021
Blog

Welcome to Denaro Anthony D Atty, your trusted source for legal expertise in the field of tax and special needs planning. As tax season approaches, many individuals and families are seeking guidance on how to navigate the complex world of tax deductions and medical expenses.

Introduction to Special Needs Trusts (SNTs)

When it comes to planning for the financial future of a loved one with special needs, Special Needs Trusts (SNTs) can play a crucial role. An SNT is a legally established trust that protects and manages assets on behalf of an individual with disabilities or special needs. One of the key benefits of an SNT is its ability to preserve eligibility for means-tested government benefits, such as Medicaid and Supplemental Security Income (SSI).

Understanding Deductible Medical Expenses

As individuals and families face the burden of medical expenses, it is important to be aware of potential deductions that can help alleviate some of the financial strain. Deductible medical expenses are those that are considered necessary for the diagnosis, cure, mitigation, treatment, or prevention of disease or injury.

It is important to note that not all medical expenses are deductible. To be eligible for a deduction, the expenses must exceed a certain percentage of your annual income, as determined by the Internal Revenue Service (IRS). For most taxpayers, the threshold is 7.5% of their adjusted gross income (AGI). However, it is always advisable to consult with a qualified tax professional for personalized advice tailored to your specific situation.

The Role of SNTs in Deductible Medical Expenses

Special Needs Trusts can provide significant benefits when it comes to deducting medical expenses. By properly structuring an SNT, individuals with disabilities can potentially utilize funds from the trust to pay for medical expenses that are not covered by insurance or other means.

One important consideration is the type of trust being utilized. There are two main types of SNTs: First-Party SNTs and Third-Party SNTs. The type of trust being used will impact the eligibility for certain deductions.

First-Party SNTs and Medical Expense Deductions

In the case of First-Party SNTs, which are funded with the disabled individual's own assets (such as an inheritance or a personal injury settlement), there are limitations on deductibility. Medical expenses paid directly from a First-Party SNT are generally not eligible for a deduction on the donor's federal income tax return. The reasoning behind this limitation is that the individual with disabilities has already received a tax benefit when the assets were placed into the trust.

However, it is important to explore all possibilities and consult with a tax professional, as there may be certain situations where deductions may still be applicable.

Third-Party SNTs and Medical Expense Deductions

When it comes to Third-Party SNTs, which are typically funded by family members or loved ones, there may be more flexibility in deducting medical expenses. Since the assets in a Third-Party SNT do not belong to the individual with disabilities, deductions may be available to the donor for medical expenses paid from the trust. Again, it is crucial to seek professional advice to ensure compliance with applicable tax regulations.

An Experienced Ally in Tax and Special Needs Planning

At Denaro Anthony D Atty, we understand the intricacies of tax law and special needs planning. Our team of experienced attorneys can provide guidance and expertise in navigating the complexities of Special Needs Trusts and deducting medical expenses. We work closely with individuals and families to create customized solutions that meet their specific needs and goals.

Contact Denaro Anthony D Atty Today

Are you seeking expert advice on tax planning, Special Needs Trusts, or deducting medical expenses? Contact Denaro Anthony D Atty today to schedule a consultation. Our dedicated team is ready to assist you in achieving financial peace of mind during this tax season and beyond.

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