Working Caregiver- Caregiver Tax Tips
Caregivers Tax Tips - Bill paying, Medical & Insurance Claims, and Tax Preparation.
Texas Caregivers Tax Tips - Check for Tax Breaks
If your mom or dad needs money for home repair, you write them a check... right? According to an AARP study, for some boomers, looking after your aging relative entails more than writing an occasional check. for home repairs. According to this study released this month, nearly a quarter of unpaid caregivers say that caregiving is a financial hardship.
When caring for an aging parent or relative, we do for them the things they are unable to do any longer, and many times this includes issues related to their finances. Typically, we caregivers take over the bill paying, medical claims, insurance claims, investment savings, and tax preparation. Most weekends visiting my dad, we'd sit down and look at his bills, talk with insurance agents about his policies, call the bank where his investments reside, among a few other financial matters.
If you're supporting an aging parent, you might be able to claim that parent as a dependent on your tax return. What I've learned from my CPA is that caregivers, like myself, should be on top of the latest tax advantages in order to be prepared for filing by April 15. Here are some areas to investigate. Caregiver Tax Tips - help claim tax breaks:
Income - To qualify a a dependent, your parent's income can't exceed the amount of the personal exemption. That cut-off in 2007 was $3.400. In most cases, Social Security benefits aren't counted. But if your parent receives more that $3,400 from other sources, such as pension benefits, interest and dividends from retirement savings plans, you can't claim them as a dependent.
Support - You must also provide more than a half a parent's costs for food, housing, medical care, transportation and other necessities. Your mom or dad doesn't have to live with you to qualify as a dependent, as long as she meets the invome test and you provide more than half her/his financial support. If one is living with you, then you can include a percentage of your mortgage, utilities and other expenses in calculating how much you contribute to herhis support.
Shared Support by Family - If your mom/dad receive support from several family members or adult children, you or your sibling may qualify to claim a parent as a dependent. It works like this, if one sibling is providing more than half the the parent's financial supporte, only that sibling can claim the parent.
Elder's Medical Expenses - My CPA advised me that -- either the caregiver or the care-receiver -- has medical expenses that exceed 7.5% of their adjusted gross income, those expenses are deductible - if they can itemize on Schedule A. You are able to, if it's better, to consolidate the expenses and consider putting off paying some at the end of the year if you cannot itemize, and try to have enough to itemize the following year.
Not all taxpayers have enough deductions to itemize, as in the case of my dad, so we end up using the standard deduction. It's helpful, if the caregiver educate oneself and review the expenses as they near year-end in order to maximize deductions when filing.
Medical expenses include the cost of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs of treatments affecting any part or function of the elder's body. The medical care expenses must be to alleviate or prevent a physical or mental defect or illness. Medical expenses also can include dental expenses. When considering medical expenses, please know they do not include expenses that are merely benefit general health, such as vitamins or a vacation.
We learned through the CPA that premiums you pay for insurance that covers the expenses of medical care, and the amounts you pay for transportation to get medical care are considered expenses. As well as qualified long-term services and limited amounts paid for any qualified long-term care insurance.
Many items are considered under the heading of "Medical Expenses," including such things as the amount paid for transportation that is primarily for medical care and the expense of a wheelchair that is used for the relief of sickness or disability but not for transportation alone. To find out whether an item is one that can be deducted as a medical expense, review a copy of Publication 502 on the IRS web site at www.irs.gov/pub/irs-pdf/p502.pdf .
Other Tax Considerations For Caregivers - According to my CPA - in the IRS Publication 502, we are entitled to the following benefits: we can consider the medical expenses we pay for ourselves and for dependents either when the services were provided or when you paid for them.
It is important for caregivers to be aware of the tax laws. They should be current o all of the deductions available to them, and to their loved one, when preparing for tax filing season. For example, nursing home expenses are deductible, and if you are paying for your parent's care in a nursing home because your parent doesn't have the resources to pay for himself, you are entitled to claim the expense. If your loved one is in a wheelchair, the cost of the chair is tax deductible as long as the use is primarily for the relief of sickness or disability and not strictly for transportation to and from work. If you, the caregiver, are footing the cost, you are entitled to an itemized deduction.
Recent changes to the tax laws include a change that reflects non-prescription medication. One positive change enlisted by the IRS is to allow certain non-prescription medicines allowed as reimbursable items via an employee 'cafeteria plan' (sometimes called a flexible spending plan).
Check with Your CPA and Learn the Laws - Check your state tax credit programs, in addition to federal tax credits, some help reduce the amount of income tax a family must pay every year. With the increased expense of caring for a loved one, it is important for caregivers to take advantage of any and all tax benefits and credits they can.
A few key things to remember, relating to your caregiver status:
The person you are supporting must be a relative, or someone who has lived with you for the year, though a non-relative living in a nursing home or assisted-living facility will still qualify.
The loved one must be a U.S. citizen or a resident in the United States, Canada or Mexico.
And your loved one cannot have filed a joint income-tax return for the same tax year unless it was filed only to claim a refund. If this is the case, then it may be more advantageous, from a tax standpoint, to file separate tax returns. Check with your state laws on community property before going this route.
If these requirements are met, then you can claim the medical expenses as part of your overall deduction, but only to the maximum 7.5% of your adjusted gross income. In order to claim your loved one as a dependent, certain criteria must be met. The elder person's gross income cannot be higher than the personal exemption amount for the tax year in question -- $3,400 in 2007 - in order to be considered your dependent. Keep in mind that not all income is included as gross income - for example, Social Security retirement benefits and any tax-free interest on investments are exempt.
If your loved one meets this criteria, you can claim him as your dependent, just as you would a dependent spouse or child. This results in a deduction on your taxes of $3,400 for 2004.
Other tax advantages and exemptions may be available to you, depending on the state you live in and your own personal filing status. It's always a good idea to consult with an accountant or a tax professional versed in disability-related tax law before finalizing your taxes.
