What You Need to Know About Caregiver Deductions

 

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Most of us at one time or another will be taking care of a relative, either a dependent adult (such as parents, aunts or uncles) or a child. Along with the additional responsibilities comes a change in your tax scenario. Here is a brief look at caregiving-related tax deductions.

Income

As with many tax deductions, people who want to claim a loved one as a dependent must first the IRS income guidelines. The person whom they will be caring for must earn less than $3900 a year. This income figure doesn’t include any additional income from Social Security or Social Security Disability.

Eligible income includes  interest from bank accounts, pension payments, and investment dividends. Before claiming the individual on your taxes,  should make sure that this individual’s income falls within IRS guidelines.

Provider Cost Requirements

In order to claim a loved one as a dependent, you must provide at least 50 percent of that person’s support and use at least 10 percent of their adjusted gross income to cover their individual’s medical expenses.

You will need to meet both the income requirements and the provider cost requirements in order to claim the dependent care deduction

Restrictions/Limitations

Keep in mind that even thought you may divide financial and practical caregiving among siblings or other relatives, only one of you can claim your loved one as a dependent.

One possible solution is to have the sibling or relative who is providing the majority of support claim the deduction. Other families elect to take turns each year claiming their loved one as a dependent.

Non-Relative Household and Residency Requirements

You do not have to be related to the person for whom you are providing care. However, you do have to meet certain household and residency requirements before claiming this person as a dependent on your taxes.

By law, you must either live with the person your caring for, or they must live with you for at least an entire tax year. You won’t be able to claim the caregiving deduction if your caregiving arrangement doesn’t meet one of the above guidelines.

Deduction Limitations

Here are some of the expenses you can claim as part of the caregiving deduction

  • Medical bills
  • Long-term care costs
  • Taxes on inherited IRAs
  • Prescriptions
  • Mileage related to medical/dental care for your dependent
  • Dental bills
  • Interest on their  mortgage if they make the payment each month
  • Home remodeling expenses related to modifications for increased safety and/or accessibility

As our population ages, more and more individuals are electing to take care of their loved ones. If you are caring for an aged or disabled loved one, keep in mind that certain expenses are tax-deductible if you meet the income and residency requirements above. If this is your first tax year as a caregiver, be sure to check with a licensed tax pro regarding deductions.

Each person’s tax scenario is unique, and consulting with a tax pro will enable you to claim the deductions that you are entitled to each year.

 

 

Child Support and Your Taxes

Paying or receiving child support payments carry a new set of tax implications. Keep the following in mind as tax day approaches, or discuss these changes with your legal representative:

In order to qualify, the child support payments must be designated as “child support” and not as “family support” or “family support.”

By having the money designated only as child support, you won’t have to claim child support as income on your tax return if you are the parent receiving child support payments.

If child support is included in your monthly spousal support, you will be required to declare the money as income, and you could end up with a higher tax bill.

However, if you are the parent who is responsible for paying child support, you cannot deduct it as an expense on your tax returns. Only spousal support and family support payments are deductible.

Child Support and Filing Taxes

Since child support is intended to be used for feeding, housing, and otherwise caring for minor children under 18, the IRS does not consider it taxable income. Since it isn’t considered income, you aren’t required to declare it on your tax returns each year.

Child Support and Exemptions

Your court-issued divorce decree will state which parent can claim your children as exemptions on your tax return each year. If you are the non-custodial parent, however, you do have the option of claiming your children as exemptions on your tax return if:

  • You pay at least $600 per year in child support
  • Your divorce decree states you can include the children on your returns as exemptions
  • Your spouse gives you written authorization to claim the children as exemptions
  • You fill out and attach IRS form 8332 to your tax return, proving you have met the criteria for including your children as dependents, even though you are the non-custodial parent.

It’s important to keep in mind that both you and your spouse can’t claim your children as exemptions at the same time. In doing so, the IRS will flag both of your returns. You could end paying fines and/or having any refunds seized. In other words, don’t do it. Running afoul of the IRS just isn’t worth it.

Divorce and separation bring about many changes in your tax scenario, so it’s important to understand these changes ahead of tax season. Even though the IRS doesn’t consider child support as income, there are tax implications for you both under certain circumstances.

Always raise any tax-related questions with either your legal representative or with a qualified tax pro. Having the correct information is especially important if this will be your first year of either paying or receiving child support.

Summer Daycare Expense: Are They Deductible?

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iStock

As the kids head back to school and return to  their normal routine, you may be wondering if their summer day care or summer camp expense is tax deductible. While they were necessary in order to provide your kids with supervision during the summer, it’s hard not worry about the expense. Here’s a look at how the Child Care Tax Credit as it applies to summer camps and summer daycare.

Eligible programs:

  • Day camps. Overnight camps are not eligible per the IRS guidelines
  • Daycare
  • Babysitter costs

If your children are under the age of 12, you can deduct a portion of the program cost or tuition. Likewise if your child has a disability and is over the age of 12, you can also apply the credit to their summer daycare/day camp costs.  Parents of qualifying children with disabilities can also deduct the cost of medications, home health care, and doctor visits.

As a parent or legal guardian of a qualifying child, you must use one of the following filing statuses in order to be eligible for this credit: single, Head of Household, qualifying widow or widower with a dependent child, or married filing jointly.

Additionally, you must be either:

  • Be a full-time college student for at least five months during the tax year
  • Be working full-time
  • Be unemployed and seeking work

You must also meet the income guidelines for each tax year as established by the IRS. If your adjusted gross income for 2015 is $15,000 or less for example, you can claim up to 35 percent of child care expenses on your tax return. As your income increases, the deductible percentage decreases.

As with any tax deduction, you’ll need receipts and records to substantiate your claim at the end of the year; such paperwork will come in handy if the IRS comes calling. If you didn’t collect any receipts or other records during the summer, most daycare and day camp programs will be happy to provide them to you; just remember to ask well ahead of tax day.

Summer child care and day camps can be expensive, but if you and your child meet IRS guidelines, you could deduct up to 35 percent of the costs at tax time. Doing so will also lower your overall tax liability and provide much-needed help with summer child care expenses.

What Every Caregiver Should Know About Tax Deductions

Photo: Taliesin
Photo: Taliesin

 

 

While taking care of a disabled or aging relative can be seen as a labor of love, caregiving can be stressful as it is rewarding. According to the Family Caregiver Alliance, 29% of adults are caring for someone who is ill, aging, or disabled. If you are caring for a loved one, you know too well the stress of balancing caregiving with employment, the needs of your other family members or spouse, and maintaining a healthy financial outlook. However, you may be able to claim your loved one as a dependent if you provide most of their care.

Guidelines

In order to claim your loved one as a dependent, they must earn less than $3900.00 per year, outside of any Social Security or Social Security Disability Income (SSDI). Income that can be counted in the annual figure can include pension income, interest income, and investment dividends.

You must also be providing at least 50% of the person’s support, along with utilizing at least 10% of their Adjusted Gross Income (AGI) to cover their medical expenses.

If you share caregiving duties with siblings or other family members, only one of you can claim your aging or disabled loved one as a dependent at any one time.

Eligible Expenses

These expenses can also be claimed as itemized deductions:

  • Medical/dental expenses
  • Long-term care costs
  • Prescription expenses
  • Milage to and from medical appointments
  • Certain home modification expenses, provided they are for the sole purpose of making your home or your loved one’s home more accessible for them.

It’s All (Non) Relative

What if the person you’re caring for isn’t a relative, but a close friend or other non-relative? You can still claim them as a dependent, if you meet one of the residence criteria:

  • You must live with that person for the entire tax year, or they must live with you for the tax year.
  • This rule doesn’t apply to non-relative caregivers who live out, even if they provide the majority of the financial support for related to the person they are caring for.

If this is your first year as a caregiver, check with a licensed tax pro regarding dependent care expense deductions and guidelines. While caregiving expenses can be claimed on your tax return, there are guidelines that have to be met by both you and the person your are caring for. An appointment with a qualified tax pro can help you sort out these issues well before tax day.

As with any tax matter, keep all receipts and records related to the deductible expenses and bring them with you when meeting with a tax pro for the first time.  Caregiving can be stressful, but if you arm yourself ahead of tax day with the right information regarding deductible expenses, you will be one step ahead and have one less stressful caregiving issue to contend with on tax day.