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Tax time is here! Although you have a few more weeks before the filing deadline, many caregivers might be procrastinating on finishing up those forms. With so many things to do, it can be easy to put things off, like making sure you’re getting all the deductions and credits you deserve for being a caregiver.
Because most family caregivers are unpaid, it becomes more important than ever to be certain you get every dime you are entitled to from the Internal Revenue Service.
From the high costs of an ambulance ride to the affordable cost of medical alert systems for seniors (when recommended by a physician), everything should be on the table when you go to visit your tax professional and get the ball rolling. Though not everything will qualify for a deduction or credit, it’s vitally important to leave no stone unturned. Every little bit helps.
If you’re not organized for this tax filing period – for instance, if you didn’t save any receipts for expenses and you weren’t even sure what expenses matter – you can start right now to get organized for next year. Here’s how.
1. Document All Expenses
Keep every single receipt and documentation of your expenses related to caregiving. This should include any medical bills that aren’t covered by insurance, the cost of over-the-counter medications or health aids (such as walkers or canes), and any aging in place home modifications you might have installed for safety and better health.
You should even document any expenses related to an affordable emergency alert system, which may be tax deductible under certain conditions. Your tax professional can let you know for sure.
You should even keep track of your mileage, any tolls or parking fees, and other costs related to taking your loved one to the doctor. If you take them to a specialist out of town, your meals and hotel rooms might be considered deductible as well. Keep a journal to record your expenses and a box or file for receipts.
Some senior living expenses, such as part of assisted living costs, might qualify for a tax deduction if:
· The individual needs assistance in performing at least two activities of daily living, OR
· The individual requires supervision due to cognitive impairment, such as a person with dementia.
If you are paying for professional caregiving, there are taxation laws that address this. How much you pay them, how you pay them, the taxes you withhold for them (if any), and whether they live in the home or not all play a part in your bottom line for taxes each year. If you hire professional help, it’s time to talk to a Certified Public Accountant (CPA) to get the information you need.
2. Check Dependent Status
Contrary to popular belief, family members don’t have to live in your home for the whole year to be considered your dependent; there are other guidelines that can help you reach that status. If you provide more than half of their living expenses, medical care, and other care necessities, you might be able to claim them as a dependent for tax purposes.
Here are some of the other guidelines, according to the Internal Revenue Service:
· You are not a dependent of any other taxpayer. If filing jointly, neither you nor your spouse is a dependent of another taxpayer.
· Your parent doesn’t file a joint return (if married) unless that return is only to claim a refund.
· Your parent is not a dependent of any other taxpayer.
· Your parent makes less than $4,700 for the calendar year (this is subject to change every year, so the number might fluctuate).
· Your parent is a U.S. citizen, national, or resident alien, or a resident of Mexico or Canada.
· You paid for more than half of your parent’s needs during the year.1
If you are taking care of a foster parent, they must live in your home with you for the entire year as a member of your household. Someone who is unrelated to you might also be considered a dependent if they live in your home and meet low-income guidelines.
If you are unmarried, you might be able to claim head of household status, which can provide you with even more tax advantages.
3. Make Use of HSA
Healthcare spending accounts can provide a significant tax break if you use them properly. You can put money directly into the account from a paycheck or other source. You can then use the money tax-free to pay for qualifying medical expenses, such as over-the-counter medications or testing not covered by insurance.
According to the Health Insurance Marketplace, qualifying expenses can include hearing aids (whether over the counter or prescription), co-pays or co-insurance, rides in an ambulance, some non-traditional remedies like acupuncture, and psychiatric care or counseling.
These are just a few examples – there are many other ways to use your HSA.2
Keep in mind that this only works for your loved one if you are fully responsible for more than half of their daily care. The contributions that you put toward the HSA do not expire, so whatever is not used can be rolled over to the following year.
Also remember: If you use the money for non-medical expenses, you could be taxed up to 20% on that withdrawal. To avoid this, understand what you can use the money for, save every receipt, and keep good records on what you purchased, how much it cost, and why it was necessary.
4. Deduct Healthcare Expenses
If you can claim a senior adult as a dependent under the IRS guidelines, you can also deduct the medical and health care expenses you incurred in taking care of them.
This can include what you pay for hearing aids, dentures and other dental work, eyeglasses and vision tests, and medical supplies, such as what you might need for wound care or diabetes testing. You can even deduct the cost of obtaining, training, and caring for a service dog.
Keep every receipt, no matter how small the cost – those pennies add up fast. Make note on the receipt of why the item was purchased or what it was used for. If you gift your loved one with a fall alert, you should even keep track of those monthly expenses. Depending upon the situation, it may or may not be deductible.
In most cases, your medical and health expenses must exceed 7.5% of your income in order to itemize them and possibly get more than the standard deduction. Your tax professional will have tips on how to help you reach that threshold.
5. Be Aware of Additional Tax Credits
You might wind up getting additional tax credits for things you didn’t expect. For instance, you might get a deduction for home modifications, but some permanent modifications that add long-term value to the home might result in a tax credit.
You might also find tax relief and grants through homestead programs in your state, which can give you tax incentives for repairing or restoring a home so that it is accessible to those who need mobility assistance.
Though these credits vary widely from one state to another and sometimes the guidelines are very strict, it’s worth mentioning to your tax professional. This is especially true if you are contemplating a home modification of some sort but want to know the tax implications before you move forward with the plan.
In addition, you might be eligible for the Child and Dependent Care Credit, which can be up to $3,000 per tax year. You might qualify for this even if you don’t claim your relative as a dependent. Even a spouse can get this credit if their partner is disabled.
Ask your tax professional if your particular situation makes you eligible for certain tax credits.
6. Work Things Out With Siblings
Tax professionals often see problems arise when siblings are all taking some responsibility for their parent’s care. Unfortunately, only one person is allowed to claim their parent on taxes, so it may cause problems if you aren’t prepared and talk things through well in advance of tax time.
If one sibling contributes 50% or more to their parent’s expenses, they are the one who should claim the deductions. But what if everyone contributes in a roughly equal manner?
This can get tricky, as anyone who paid 10% or more might be able to qualify to claim a parent as a dependent. In this case, one person will have to be designated as the primary caregiver, and the other siblings will need to sign a Multiple Support Declaration stating that they will not claim their parent.3
If you can work things out with your siblings concerning who provides various points of care, you might be able to work out taxes as well. Everyone going to visit a CPA at the same time for a group meeting can help sort things out.
Filing Your Taxes
When money is tight, you might be tempted to file your taxes yourself. But when you do so, that means you might miss out on several deductions and credits that a tax professional would spot immediately.
If you need help with filing, there are several options. The Volunteer Income Tax Assistance program, known as VITA, can help those with disabilities, low income, or who speak limited English.
MilTax is available for those who are members of the armed forces. If you or your loved one is a veteran, Tax Counseling for the Elderly (TCE) is a service that might help you find credits and even lower your filing fees. There are many other options, as many tax professionals choose to provide low-cost or free tax preparation to those who have served the country.
A program called Free File is a fantastic option for those who need to file state or federal returns but can’t afford the costs. This allows you to use professional software for no fee.
And finally, you can always go to the source. The IRS offers all the forms you need online, for free. If you will be doing your taxes yourself, read the information carefully and search the IRS website for deductions and credits that might pertain to caregivers.
