A new year is just around the corner, and it’s not too early to start preparing for tax season, especially if you’ve recently become a caregiver to a spouse or relative. While caregiving takes up a considerable amount of time and energy, the role also takes a toll on your finances. In fact, an AARP study suggests that the average caregiver spends approximately 20% of their annual income on out-of-pocket costs related to caregiving. Fortunately, qualifying caregivers can claim tax deductions for certain expenses, including medical costs, food, and home modifications.
For your loved one to be claimed as a dependent, they must meet the following requirements:
- Your loved one must be an American citizen, a US national, or a US resident alien, and have a valid identification number. They may also be claimed if they are a resident of Canada or Mexico.
- Your loved one must meet the gross income test, meaning that they must not have earned or received more than a specific amount of gross income for that tax year. Gross income includes all income in the form of money, property, and services that isn’t exempt from tax. The gross income limit for 2019 is $4,200. Visit the IRS website for updated information as this amount can change from year to year.
- As the caregiver, you must have provided more than half of your loved one’s total support during a calendar year, and the amount you provide must exceed their annual income. Support includes all money spent on lodging, food, clothing, medical care, dental care, recreation, and transportation.
- Your loved one must either live with you all year as a member of your household or pass the relationship test. A family member does not have to live with you but must be related to you to pass the relationship test. These relations include, but are not limited to, your parents, grandparents, siblings, aunts, and uncles. Visit eFile.com for help determining whether or not your loved one is a qualifying relative.
If your loved one does not qualify as a dependent based on the gross income test, you may still be able to deduct their medical expenses as long as you’ve provided more than 50% of their support. For tax year 2019, these expenses must exceed 10% of your adjusted gross income. A comprehensive list of acceptable deductions can be found in IRS Publication 502, but here is a sampling:
Eyeglasses and Contact Lenses
Accommodations needed near treatment centers (up to $50 per night)
In-Home Health Care
Whether you’re a new or experienced caregiver, we suggest consulting a tax attorney or accountant before preparing any tax forms. Be sure that they are familiar with elderly dependent care and are willing to walk you through the process and answer any questions you may have along the way.
A loved one’s retirement can be a rewarding time, and successfully planning for it financially ensures they enjoy the best possible quality of life. With over 70% of people over age 65 requiring some form of long-term care, this becomes even more important. Our comprehensive Guide To Senior Living Funding is packed with information on funding types and sources; comparing aid and benefits and comparing the costs of living at home or joining a senior living community. Be financially prepared, download your copy today →