Here’s some information that will help you with the task of sending your child to a special needs school.
Defining “Special Needs” School
The education costs of mentally or physically challenged individuals qualify as medical expenses if the primary purpose of the school they attend is to enable the students to compensate for or overcome those challenges.
Other education at the school will not disqualify the expenses as long as the other education is incidental to the school’s primary purpose.
Several types of schools qualify, including (but not limited to) those that
teach Braille to the blind or lip reading to the deaf,
offer special programs for children with severe learning disabilities, or
provide an environment in which intellectually or physically challenged students can adjust to a mainstream classroom situation.
Lawmakers are surprisingly generous regarding which schooling expenses you can deduct. You’ll find that most, if not all, the additional costs for special needs schooling are deductible medical expenses that you can deduct as itemized deductions or reimburse with the 105-HRA, making them business expenses. These include the following:
Meals that the school provides
Lodging that the school provides
Transportation to and from school
The IRS has stated in several rulings that a key factor it looks for in determining whether school expenses qualify as medical expenses is that a doctor recommended that the child attend the school.
You would like to think that the IRS would not question the legitimacy of your child’s need to attend one of these schools—but you simply can never be sure when the IRS is involved. So get what the IRS likes to see: a doctor’s note stating the need for your child’s special education.
Itemized Deduction or 105-HRA
You generally deduct medical expenses as itemized deductions on your Form 1040. The cost of your special needs school will certainly create itemized deductions for which you will receive some tax benefits.
If we were able to establish what we call a 105-HRA plan, you could possibly generate a business deduction for 100 percent of your medical costs. This business plan, if it’s possible for you, would generate far more tax benefits than you would realize from itemized medical deductions.