NOTE: Due to the COVID-19 coronavirus pandemic, the IRS has extended the federal tax filing and payment deadline to July 15, 2020. The recent relief package passed by Congress may have additional tax implications. Please contact a tax adviser for information you may need to complete your taxes this year. Learn more.
In 2015, 43.5 million Americans provided unpaid care to an adult or child. Of those caring for a family member, almost half were caring for a parent or parent-in-law. It can be a privilege to get to spend this dedicated time with an older parent. However, it’s also a huge responsibility and takes a lot of time, energy and money.
If you’re caring for an elderly parent, a tax break may not be high on your list of concerns. But discussing available tax deductions and exemptions with a tax adviser could be well worth your time.
Benefits of Using a Tax Professional
Talking with a tax professional about possible tax deductions can seem like an unnecessary step when you’re used to filing your own taxes. However, taxes are complicated and ever-changing. Discussing your situation with an adviser can ensure you know exactly what you qualify for. Plus, it takes a fraction of the time it would take you to sort through the tax laws yourself.
Working with a professional also ensures care providers don’t accidentally cause themselves problems with the IRS in the process. Tax errors can be very expensive.
3 Tax Deductions for Taking Care of Elderly Parents
Here are some tax benefits that may help you maximize your tax return as a caregiver for a parent. Speak with a tax professional to determine whether you qualify for these tax relief options.
1. Personal Exemption
To be able to file a personal exemption for an elderly parent, you’ll need to claim them as a dependent. You can claim an elderly parent as a dependent if the following three criteria are met.
- The person you are claiming as an adult dependent usually needs to be related to you either biologically or through marriage. A foster parent must live with you for a year as a member of your household. Otherwise, your parent does not have to live with you for you to claim them as a dependent.
- Your parent must not have a gross income of more than $4,150 or more per year, as of 2018. Gross income does not include Social Security payments or other tax-exempt income. These limits can and do change on a regular basis, so make sure to verify the current year’s income maximum before filing.
- You must provide more than half of the support for your parent during the year. If they are living in your home, fair market rent should be considered in the cost of support. Also included are amounts spent to provide food, clothing, education, medical and dental care, recreation, transportation and other necessities.
Even if you don’t pay more than half your parent’s total support for the year, you may still be able to claim your parent as a dependent and file a personal exemption. For example, if you and your siblings collectively pay more than half of your parent’s total support and you personally pay at least 10% toward that half, you could claim them—as long as no one else does.
2. Dependent Care Credit
If you paid another person to care for your parents while you worked or looked for work, you may be eligible to claim the child and dependent care tax credit. You—and, if you’re married, your spouse—must earn income during the year to qualify for the credit. You must also be able to claim your parents as dependents.
Through the dependent care tax credit, you can claim up to $3,000 for in-home care expenses. The limit is $6,000 if you paid dependent care expenses for two qualifying individuals. The claim allowance ends at a certain income threshold—but no matter your income, you should be able to claim some allowance if you meet the other criteria.
3. Medical Expense Deduction
You might be able to deduct medical expenses you paid for your parent, even if you can’t claim them as an adult dependent. The Internal Revenue Service lets you include the amount you pay for your parent’s medical care when itemizing your deductions. However, this is only true when you can’t claim them based on their income or filing status. Allowable medical expenses include prescription drugs, dental care, hospital stays, long-term care services and premiums you pay for your parents’ supplemental Medicare coverage.
It’s possible to deduct medical expenses that are more than 7.5% of your adjusted gross income. This is true as long as you didn’t receive any other reimbursement for those expenses.
What Can I Deduct as a Caregiver?
Allowable deductions for caregivers can include things such as eyeglasses, medical costs such as bandages, hearing aids and prescription medication costs, as well as money spent toward transportation to and from appointments, modifications made to your home or vehicle for safety needs, and adult day care or in-home care services. If you use a flexible spending account or health savings account to pay for these, you may not be able to also deduct expenses on your tax return.
Speaking to a tax professional is important when determining dependent and deduction eligibility in any given tax year. There are many nuances within the tax code that may fluctuate, including how various deductions interact with each other and what you are allowed to deduct based on how you pay for it. The IRS audits a small percentage of tax returns, but you don’t want yours to be one—especially if you weren’t careful during the preparation.
Caregiving should be a rewarding experience, so don’t make a mistake that results in a tax bill that negatively impacts your credit.