Making The Most Of Your Money

Making The Most Of Your Money

Aging At Home -- How Your Taxes Can Help You Provide Care For Your Parents

by Glen Robinson

Providing care for an aging parent, grandparent or other relative in your home is a growing facet of life for many families in the United States. And while it can come with many benefits, it also brings new challenges. Some of these challenges involve the finances of how to pay for such care and how to make sure it's done correctly. If you find yourself in this situation, here are a few tax tips for in-home care that can help you meet the need for less.

Learn the Tax Breaks

There are several ways that your taxes can help defray some of your financial cost in providing home care. These include such things as:

  • Claiming the relative as a dependent. Many of the tax deductions and credits listed below rely on your having claimed the elderly person as a dependent. To meet the eligibility, the dependent must have very low taxable income (less than $4,050 in 2016) and you must provide more than half their support. But if you can do so, claiming them as a dependent can significantly increase your exemptions and lower your tax. 
  • Medical expenses tax deduction. If you itemize your deductions, you may be able to claim much or all of the amount paid to provide care for your loved one as deductible medical expenses and reduce your tax. This can include nursing expenses, durable medical equipment, medication and therapy.
  • Child and Dependent Care Credit. This tax credit allows you to deduct from your taxable income the amount you spent providing care (while you work) for someone who can't care for themselves. It can be a tax credit of up to 35% of your care expenses. 
  • Flexible Spending Account. If you have access to one through your employer, a Flexible Spending Account can be used to set aside up to $5,000 tax-free to use for the aged relative's care. 

Keep In-Home Care Legal

If you have in-home care provided, be sure that you follow the rules for paying a "household employee" correctly. Some families get into trouble with the IRS when they fail to realize or report a caregiver who is technically considered an employee. If you pay more than $2,000 annually (or $1,000 per quarter) in wages, you generally need to pay employment taxes and perform withholding for the person. You may also need to cover him or her with workers' compensation coverage. However, to offset these costs, you can usually claim the payroll taxes as part of your Dependent Care Credit. Failure to properly report a household worker can cause more headaches for everyone, so be sure you follow the rules.

If you have any questions about using these tax breaks or filing for a household employee, you may want to to work with a qualified accounting specialist. But, by knowing your options, rights as a taxpayer and legal responsibilities, you can help ensure that your caregiving experience doesn't drain your wallet. That way, you can focus on the important things -- your loved one and your family.


About Me

Making The Most Of Your Money

When it comes down to it, most of us could manage our money a little bit better. I found myself in this boat a few years ago, when I realized that I was almost broke because of my poor spending habits. I was tired of being constantly out of money, and it felt like I was drowning in debt. I knew that I wanted something to change, so I started focusing on making the most out of my money. I spent a lot of time completely overhauling my budget, and it really made a great difference in my personal life. I realized that I had a lot more money, and that I wasn't as stressed about finances all of the time. Check out my blog!