Don’t Leave these Caregiver Tax Deductions on the Table
I’m not a tax expert, but I do know how expensive medical care can be, as well as costs associated with caregiving. Over the years, I’ve worked with countless families who struggled under the financial burden of managing their aging parent’s care. While you can’t write off all of your caregiving expenses, you should take advantage of every opportunity available.
I’ll preface this by suggesting you talk to a tax specialists since there are variations on what you can write off based on where you live and your income. Some tax professionals may not think to ask about caregiving expenses if they aren’t familiar with your situation, so don’t assume they know that you are a caregiver and have deductions.
To qualify for caregiver tax deductions, the person you are caring for must be a spouse, dependent or qualifying relative, as well as a United States citizen or resident of the U.S., Canada, or Mexico. Qualifying relatives includes a parent, step-parent, father-in-law or mother-in-law, or any other person who lived with you all year as a member of your household.
The caregiver and medical expense tax rules have several important qualifications, such as:
- The 7.5% Rule: According to the IRS website, the 7.5% rule says you can “deduct only the amount of your total medical expenses that exceed 10% of your adjusted gross income or 7.5% if you or your spouse is 65 or older. The 7.5% limitation is effective only from January 1, 2013 to December 31, 2016 for individuals age 65 and older and their spouses.”
- Dependency Deduction: To qualify for a dependency deduction, you must pay for more than 50% of your qualifying relative’s support costs. There are stipulations based on gross income, so you’ll need to confirm with your tax professional if this deduction applies to you.
- Multiple Support Agreement: If you are sharing costs for a qualifying relative with your siblings or other family members, a multiple support declaration can be filed to grant one family member the exemption.
Medical Deductions for Seniors and Caregivers
The Internal Revenue Service (IRS) states, “medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of diseases, and the costs for treatments affecting any part or function of the body.” Both individuals and people who care for qualifying relatives can claim deductions and credits for a range of out-of-pocket expenditures such as:
- Dental treatments
- Cost of transportation to get to a medical appointment
- Health insurance premiums
- Long-term care services
For a full list of allowable medical expenses and further details, visit the IRS website www.irs.gov.
Deductions that caregivers may forget about include, food, housing, medical care, clothing, transportation and even bathroom modifications that are required for medical reasons. The IRS also allows caregivers to deduct the costs not covered by a health care plan for a relative’s hospitalization or for out-of-pocket costs for prescription drugs, dental care, copays, deductibles, ambulances, bandages, eyeglasses and certain long-term care services.
Other tax deductible items include acupuncture, adapters to TV sets and telephones for those who are hearing impaired, smoking cessation programs, weight-loss programs (if it’s part of a treatment for a specific disease or condition) and wigs if hair loss is because of a medical condition or treatment.
If a caregiver works but pays for care for a relative who can’t be left alone, those costs may generate a tax deduction.
Long-Term Care Medical Expenses
Long-term care medical expenses (including but not limited to diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative, as well as maintenance and personal care services) are deductible if the services are required by a chronically-ill individual and a licensed healthcare practitioner prescribes the care.
An individual is chronically ill if unable to perform at least two of six activities of daily living (eating, toileting, transferring, bathing, dressing, and continence). An individual who is cognitively impaired and requires substantial supervision is also considered chronically ill.
Nursing services performed in a nursing home, an assisted living facility, or similar care facility are deductible expenses if the person is receiving care principally for medical reasons. However, if a person is staying at a nursing ome or assisted living facility only for custodial reasons, only the medical expenses are deductible (i.e. in this instance, meals and lodging are not deductible).
In addition, nursing services performed at home may qualify as deductible expenses.
Long-Term Care Insurance Available Tax Deductions
Premiums paid for qualified long-term care insurance contracts may qualify as deductible medical expenses. According to the IRS, the contract must:
- Be guaranteed renewable
- Not provide a cash surrender value
- Not pay costs that are covered by Medicare
- Provide that refunds, other than refunds upon death, surrender, or cancelation of the contract, and dividends are used only to reduce future premiums or increase medical benefits.
Many state governments also offer tax credits and deductions for caregivers on state income tax forms, so it pays to know your individual state’s rules.
Caregiving can be overwhelming so the thought of tracking possible deductions can be more than you want to take on. However, the benefit may outweigh the time constraint. My suggestion to you is, if you didn’t track the expenses for 2016, commit to tracking them in 2017 to see if it is worth your while.
Set up a folder where you dump receipts when you’re cleaning out your wallet. You’ll be surprised by how quickly the deductions add up!