The Americans with Disabilities Act.

• Author: McLaughlin, Thomas D.
• Position: Tax preparation ramifications

The Americans With Disabilities Act of 1990 (ADA), fully effective during 1992, will have a profound impact on the tax advice accountants give to their clients.

Tax provisions related to individuals

Disability-related deductions are allowed either as medical expense deductions or miscellaneous itemized deductions. There are opportunities to make elections for alternative treatment of some items in either category. A recommended way to get maximum tax benefits from elective items is to first evaluate the items for eligibility, and then follow Flowchart I, on page 599, to maximize the tax benefits. Some deductible items are eligible for treatment as medical expenses, while other items are deductible as "work related expenses"; many of these are deductible in either group (at the taxpayer's election). Careful classification assures the best tax treatment. Flowchart I shows the effect that alternative classifications can have on tax benefits. Example 1 illustrates the use of Flowchart I to maximize tax benefits for a disabled individual.

Example 1: Individual B is hearing impaired, single unemployed at age 50. B itemizes her deductions and paid the following: $700 for a hearing-aid animal to help her at home; $450 for a special telephone; $300 for a closed caption TV decoder; and $1,200 to assistance providers on special occasions. These items qualify as deductible medical expenses, but their total amount ($2,650) plus B's other medical expenses are less than 7 1/2% of her adjusted gross income (AGI). Therefore, the medical deduction floor prevents her from using them to reduce taxable income. If 6 were employed using her telephone for employment-related conversations and paying the assistance provider for sign language interpretation for her work, $1,650 of her medical expenses could be reclassified as employment-related work expenses of a disabled person. These would deductible in full as miscellaneous itemized deductions not subject to the 2% floor. The alternative classification would reduce B's tax by $462 (assuming a 28% tax rate) and could provide similar benefits for other (state and local) income taxes that are based on Federal taxable income.

Tax provisions related to businesses

Both deductions and credits are available to businesses. The provision for barrier removal expensing (Sec. 190) was in effect long before the enactment of the ADA. Available tax credits include the targeted jobs credit and a new "small business credit"...