Timely tax saving advice when caring for a loved one
Caregivers may be eligible to declare a parent or other elderly relative as a dependent for a tax deduction, or to deduct their medical expenses from one's taxes if the primary caregiver.
While preparing a 2015 return, Visiting Angels, a home care company serving Sussex County, has a few tips for determining possible tax benefits. Remember, these tips are guidelines only. It is strongly recommended to consult with a tax advisor before submitting a return.
In order to declare an elderly relative as a dependent:
- The caregiver must be related to the person. If caring for a parent; grandparent; stepparent; or parent-in-law, one may be eligible for a caregiver tax exemption.
- The person being cared for must not have received more than $4,000 in income in 2015, This figure does not include Social Security payments.
- The caregiver must have provided more than 50 percent of the person’s living expenses, including housing, food, dental care, transportation and other similar expenses in 2015.
- The person declared as a dependent does not need to live in your home -which means they may be living in their own home, or a care facility, but the caregiveru must be paying for more than 50 percent of their expenses.
If the situation meets all of the above criteria, one may be eligible to claim a relative as a dependent on the 1040 form, which can equate to a reduction of taxable income by $4,000 for the year. For an overview of qualifications published by the IRS, click here for IRS Publication 501:
If a family is dividing the duties of caring for an individual - for example, more than one sibling is contributing to the care of a parent - one may still be eligible for the tax exemption. However, only one person can declare someone as a dependent in a single year.
Each sibling must provide at least 10 percent of the parent’s care, and combined the siblings must be providing for more than 50 percent of the parent’s care. Many families choose to take turns each year as to who will receive the tax exemption for caring for a relative. In this case, the person who is declaring the parent as a dependent must fill out a Multiple Support Declaration and submit it with their tax return. All of the other siblings must sign the form to claim that they will not take the exemption on their own tax returns.
If unable to declare a relative as a dependent because they earned more than $4,000 last year, but the caregiver still provide more than 50 percent of their expenses, one may still be able to receive tax benefits by deducting their medical expenses on the tax return. The IRS allows caregivers to deduct costs incurred from a parent’s health care, such as hospitalization, prescription drugs, dental care, and long-term services. The deduction is limited to medical expenses that are in excess of 7.5 percent of the caregiver’s adjusted gross income. Obtain a full list of deductible medical expenses from the IRS here: http://www.irs.gov/pub/irs-pdf/p502.pdf .
In addition to these federal tax benefits, some states also offer tax incentives for caregivers. Since tax laws are complex, you should always consult with a tax expert before finalizing a tax return.
For more resources for family caregivers, or to explore other care options for a loved one, call Visiting Angels at 302-329-9475 or go to visitingangels.com/sussexde.