Limits on claiming a dependent's medical expenses

Technical topics regarding tax preparation.
#1
ode923  
Posts:
128
Joined:
26-Sep-2017 11:06am
Location:
USA
The clients: a couple with a dependent child who will incur significant medical expenses. One spouse makes significantly more than the other. They are not in a community property state.

If they file jointly, they won't be able to deduct much of the expense due to their combined AGI being so high. If they file separately, the spouse with the lower AGI could claim it and deduct more of the dependent child's medical expenses.

I'm vaguely aware of a limit on spouses claiming deductions in this way. But I can't find any IRS code on the topic. Can the couple do this? Thank you in advance.
 

#2
makbo  
Posts:
6840
Joined:
23-Apr-2014 3:44pm
Location:
In The Counting House
ode923 wrote:If they file jointly, they won't be able to deduct much of the expense due to their combined AGI being so high. If they file separately, the spouse with the lower AGI could claim it and deduct more of the dependent child's medical expenses.


But the lower earning spouse won't get as much benefit from the deduction, and they both will want to itemize deductions if one does.

Usually when the earnings are unequal, there is a "marriage reward" for filing jointly. Have you actually run the numbers to see if there is significant benefit from MFS, including the cost and hassle of filing separately?
 

#3
Joan TB  
Posts:
1897
Joined:
21-Apr-2014 9:08am
Location:
Texas
with MFS - if one itemizes, they both MUST itemize. Also, with MFS, other tax items not available. Look at the total picture to decide what works best.
 

#4
makbo  
Posts:
6840
Joined:
23-Apr-2014 3:44pm
Location:
In The Counting House
Joan TB wrote:with MFS - if one itemizes, they both MUST itemize.


Technically, no. One could claim the zero standard deduction for MFS if the other itemizes. In practice they will want to, but it's not required.
 

#5
Jake  
Posts:
1384
Joined:
12-May-2014 3:19pm
Location:
Columbus, Ohio
In the old days I just had to run both scenarios - maybe the software is better these days and can do that automatically. I could usually eye ball it and tell if mfs had the potential to be a better result. If they weren't married then you would not be forced into giving up the standard deduction if the other "partner" itemized. I saw a few of those situations.
 

#6
HowardS  
Posts:
2819
Joined:
21-Apr-2014 3:12pm
Location:
Southern Pines, NC
I think the OP is asking if the medical expenses can be allocated to maximize the deduction. I'm not aware of any restrictions.
Retired, no salvage value.
 

#7
Nilodop  
Posts:
18751
Joined:
21-Apr-2014 9:28am
Location:
Pennsylvania
I think the OP is asking if the medical expenses can be allocated to maximize the deduction. I'm not aware of any restrictions.. If by allocated you mean between the spouses, I'm not so sure that's the question by OP, but if it is, not so sure your answer is right. If they file as "MFS", each spouse claims only the medical expenses paid by that spouse.
 

#8
HowardS  
Posts:
2819
Joined:
21-Apr-2014 3:12pm
Location:
Southern Pines, NC
You are correct, assuming the lower AGI spouse did not pay all the medical expenses for the child. I ran across this:
In addition, Rev. Rul. 59-66, 1959-1 C.B. 60 holds that amounts paid for the medical care
of a taxpayer, her husband and their son and daughter, from funds deposited in a joint
checking account in which the husband and wife apparently have an equal interest are, in
the absence of competent evidence to the contrary, presumed to be paid equally by the
husband and wife for the purpose of computing the deduction allowable under section 213
when the husband and wife elect to file separate Federal income tax returns.
Based on these authorities, we conclude that funds paid from a joint account with two
equal owners are presumed to be paid equally by each owner, in the absence of evidence
showing that is not the case, as reflected in PLR 5707309730A.
Retired, no salvage value.
 

#9
Nilodop  
Posts:
18751
Joined:
21-Apr-2014 9:28am
Location:
Pennsylvania
es, as sccncl saed n Pb 502. Yes, as succinctly stated in Pub 502.
If you and your spouse live in a noncommunity property state and file separate returns, each of you can include only the medical expenses each actually paid. Any medical expenses paid out of a joint checking account in which you and your spouse have the same interest are considered to have been paid equally by each of you, unless you can show otherwise.



That first sentence of mine above resulted from a weird keyboard issue I have, as discussed in the Penalty-free Zone and as corrected from time to time by me. Letters y, u, i, o and p are the culprits. If you have a more permanent solution, please post it in PFZ, not here.
 

#10
ode923  
Posts:
128
Joined:
26-Sep-2017 11:06am
Location:
USA
OP here. To clarify my question: HowardS paraphrased me correctly. Can medical expenses can be allocated to maximize the deduction?

Thank you for all the answers. Based on IRS guidance shared by Nilodop, it comes down to a technicality of who owned the bank account that paid for the medical expenses.

It seems like a silly technicality. Spouses can make unlimited gifts to each other.

Say Spouse A makes $300,000 a year and spouse B makes $50,000 a year, and their child C has $25,000 in medical expenses.
They have one joint bank account where they deposit all of their income.

Then they decide to open up an account under spouse B's name, and transfer $25,000 into this new account. Then Spouse B writes a check from that account to pay for child C's medical bills.

Now spouse B can claim all of those medical expenses on spouse B's separate return.

It seems like a silly step, but based on IRS guidance, it also seems necessary.
 

#11
Nilodop  
Posts:
18751
Joined:
21-Apr-2014 9:28am
Location:
Pennsylvania
I don't think that's the only way, but that way would work

RR 59-66 closes with this conclusion:
Accordingly, it is held that amounts paid for the medical care of a taxpayer, her husband and their son and daughter, all residing in a noncommunity property state, with funds deposited in a joint checking account in which the husband and wife apparently have an equal interest are, in the absence of competent evidence to the contrary, presumed to be paid equally by the husband and wife for the purpose of computing the deduction allowable under section 213 of the Code, when the husband and wife elect to file separate Federal income tax' returns.



The case cited in the RR is Higgins, https://www.leagle.com/decision/195115616rtc1401139, which seems to allow for the possibility of an agreement between spouses about whose money (in a joint account) is being used for a particular expense.
 


Return to Taxation



Who is online

Users browsing this forum: EstatesAndMore, Google [Bot], HowardS, JoJoCPA, UnlicensedTaxPro and 115 guests