Whether you’re caring for your parent, spouse, partner, or other loved one, the costs of caring can add up quickly. The amounts covered by Medicare or insurance can be lower than expected. Did you know there are tax breaks for family caregivers? Here are 3 steps to potentially reduce the financial burden of care:
1. Establish dependent status for your loved one.
To qualify for tax breaks related to your loved one’s medical expenses, s/he must qualify as a dependent. IRS criteria for claiming elder dependents changes regularly, so check the IRS.gov caregivers page and talk to your accountant to make sure your family member meets the requirements. Two important factors: You must have paid more than half of your parent’s support for the calendar year, and their gross income for the calendar year must be less than $4,300.
2. Identify and itemize eligible medical expenses.
With dependent status confirmed, you can start logging IRS-eligible medical and dental expenses, which include:
- Dental care, including dentures
- Fees paid to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists and nontraditional medical practitioners
- Home health visits
- Inpatient hospital care or residential nursing home care
- Insurance premiums
- Prescription drugs, including insulin
- Special equipment or home improvements related to accessibility, safety and medical care
- Transportation to and from medical care
Unfortunately, you can’t deduct every penny spent. Expenses covered by insurance aren’t eligible. You can take deductions for a percentage of the amount determined by your income and other factors. That’s why it’s vital to discuss your situation with a tax professional, and perhaps engage them to prepare your return. Learn more about deductions from the IRS:
- Dependents, Standard Deduction & Filing Information: IRS Publication 501
- Medical & Dental Expenses: IRS Publication 502
3. Investigate additional tax credits and deductions for elderly parent care
You may also qualify for the child and elderly dependent care tax credit for your spouse or a person who lived with you for more than half the year and wasn’t physically or mentally able to care for themselves. Get the details in IRS Publication 503.
Tax issues are complex and can be stressful, and it’s hard to know if you’re taking advantage of all available benefits. While working with tax experts does cost money, in many cases they end up saving you more – or helping you avoid costly errors – than you paid them. For that reason, always consult a tax specialist before claiming dependents and taking advantage of tax credits or deductions.
This information is not intended as a substitute for professional financial, accounting, tax or legal consultation; it is provided “as is” without any representations or warranties, express or implied. Always consult professionals when you have specific questions about any financial matter.