Those caring for an older adult typically know first-hand how quickly additional expenses can pile up. Fortunately, there’s good news come tax time: caregiving-related tax deductions can help to lower your taxes and maximize your refund. Use these smart tax tips as a caregiver to find as many deductions as possible:
1. Save any and all receipts related to caregiving expenses. This includes medical bills not covered by insurance, medically necessary home modifications, equipment and supplies, and transportation expenses for doctor’s appointments. Keep in mind that the IRS always requires documentation for any potential write-offs.
2. Use funds from health care spending accounts. In certain situations, both flexible spending accounts (FSAs) and health savings accounts (HSAs) may be used to pay for medical expenses not covered by health insurance. The qualification is that the taxpayer must be responsible for at least 50% of that person’s care. This important distinction is another reason why proper documentation of expenses is so important.
3. Understand IRS rules about dependents. Many caregivers wonder whether they can claim their older adult as a dependent on their tax return. IRS guidelines stipulate that family members don’t need to live in your home for the entire year to be able to be claimed as a dependent, as long as specific conditions are met – including your supporting more than 50% of their living expenses, medical costs, and other care. Non-family members may be considered a dependent for tax purposes if they live in your home for the entire year and meet the low-income guidelines (excluding Social Security and disability payments).
4. Decide which sibling can claim costs. Although multiple siblings are often involved in caring for a family member, only one can claim the parent as a dependent as well as claim caregiving expenses on their tax return. Most of the time, the sibling who contributes 50% or more to parental care expenses is the one who is eligible. To keep the family peace, make sure everyone is on the same page at the beginning of the year so there is no misunderstanding as to who will be claiming the tax deductions.
5. Deduct any medical expenses you paid for. Those who are eligible to claim their older adult as a dependent can also deduct any medical expenses they paid for them. It’s best to check the IRS list of eligible medical expenses so you don’t miss anything, as you may not realize certain expenses are deductible. For example, you can deduct costs for hearing aids, dentures, etc.
6. Determine the appropriate filing status. Check with your tax professional to decide what filing status is most beneficial for you. If you’re unmarried at the end of the year and are able to claim your older adult as a dependent, you will qualify to file your taxes as head of household. Even if your parent didn’t live with you over the past year, as long as you paid more than half the cost of keeping up their home and the parent qualifies as your dependent, you can file as head of household.
7. Look into additional tax credits. You may also qualify to claim certain tax credits related to other care costs. For example, if you hire someone to provide care for your older adult so you can work part-time or full-time, you may be eligible for a tax credit to offset those costs. In fact, even if your older adult pays for part of the cost for care, you may still be able to claim the credit if you paid 50% or more of their overall care and living expenses.
These savvy tax tips are a good place to start when looking for ways to qualify for tax deductions or credits as a caregiver. As always, however, be sure to consult a tax professional about your specific situation.