Year-end tax planning is an excellent opportunity for home caregivers to review tax options such as claiming their parents as dependents. Financial advisors encourage clients to review family caregiver tax planning strategies early so that various options can be reviewed before the April 15 tax filing deadline.
Not just parents
Home caregivers must meet several requirements before they can claim elderly patients as dependents. For example, the caregiver can’t be claimed as dependent by another person, the patient must be an official resident of the U.S., Mexico, or Canada, and the patient cannot be filing a joint tax return with his or her spouse.
While the patient must be a relative, that does not mean that he or she must be a mother or father. Depending on other factors, home caregivers may also opt to include a grandparent, step-parent or mother- or father-in-law as a dependent.
There’s a financial floor to consider as well: home caregivers cannot claim as dependents elderly individuals whose gross income is $3,650 or more. (That figure usually does NOT include Social Security payments.)
Perhaps most significantly, home caregivers may be able to claim as dependents parents or other elderly individuals even if those individuals do not live in the same house as the home caregivers.
Home caregivers must also qualify
The bottom line is that basically you, as a caregiver, must be paying more than 50 percent of the patient’s expenses (medical, groceries, rent/mortgage, transportation, etc.) Some people may run into conflicts in cases in which two or more children are providing support. Basically, whoever is paying for more than half of the expenses is the only one eligible to list the parent as a dependent on tax forms.
Benefit of claiming dependents
There are several benefits to claiming a parent for whom you are caring as a dependent. One of the most important of these is that you may be able to deduct medical expenses. In order to qualify for this, total allowable medical expenses must come to at least 7.5 percent of your adjusted gross income. (For example, if you adjusted gross income is $50,000, you could claim medical expenses if they totaled $3,750 or more.)
Taxes can be very complicated and confusing, so if possible, consult with an expert to determine whether you can claim a parent as a dependent and to see what the possible benefits might be for you. Interested home caregivers might also want to check out IRS Publication 501.