If you care for an aging relative, you may be able to claim certain expenses related to the relative’s care on your tax return.
Here are some tips that could save you some tax dollars this year:
Claim older adults as dependents – If you provide more than half of the support for a relative, you may be able to claim that relative as a dependent on your income tax return. The amount of the exemption you can claim for each dependent is $3,800 for 2012.
But the dependency rules, particularly for older people, can be quite complicated. For example, you cannot claim as your dependent an older adult with gross income during 2012 of $3,800 or more.
At higher income levels, a portion of a person’s Social Security benefits is included in gross income on a sliding scale. But at lower income levels (below approximately $25,000 for a single filer and $32,000 for joint filers), Social Security benefits are excluded from gross income. So, people whose only income is from Social Security will meet the $3,800 test.
In addition, certain relatives can be claimed as your dependent only if they live with you. Other persons, who are not related to you, can qualify as your dependent if they live in your household.
Finally, if your older relative is married and files a joint return, you may not be able to claim the relative as your dependent.
Because of the complexity involved, it is best to consult with a tax adviser when claiming an adult as a dependent.
Itemize medical deductions – There are a variety of items related to dependents that you can deduct on your tax return, if you pay the costs. Qualified expenses include premiums for medical, dental and long-term care insurance, as well as the cost of doctor visits, surgeries, lab work, in-home services, dental work and supplies like false teeth or wheelchairs.
If your presence is necessary during medical care or treatment, you can deduct expenses related to transporting your dependent to medical appointments. Those expenses include mileage, parking, tolls and even meals and, to a limited extent, lodging for longer trips, like seeing a specialist.
Medical expenses you pay for a dependent in a nursing home or rehab can also be deducted. Keep track of fees paid for in-home help such as nurses, home health aides and therapists.
If you cannot claim an adult as your dependent solely because their income is greater than $3,800, you can still deduct their medical expenses as part of your itemized deductions.
You can deduct medical expenses for you and your dependents only if the total not covered by insurance exceeds 7.5 percent of your adjusted gross income. For example, if you have adjusted gross income of $75,000, your medical expenses for all family members must total more than $5,625. Only the total in excess of that amount is deductible on your return.
Claim dependent care credit – If an older adult lives with you and qualifies as your dependent, and you pay for adult day care so that you can work, look for work or in some cases go to school, you may qualify for the dependent care credit. The amount of the credit is a function of both the amount you pay for qualified expenses and the amount of your income.
In some cases, the same expense will qualify for the dependent care credit and as a medical deduction. You will have to choose which is better, since you cannot claim the same expenditure twice.
Document possible tax deductions – As with all matters affecting your taxes, keep careful records and receipts for any items you plan to deduct.
Consider a flexible spending account (FSA) – If your employer offers the arrangement, an FSA allows you to put aside pretax dollars to use for medical expenses. Total your out-of-pocket costs for the previous year to get an estimate of how much you can expect to spend. The trick is not to put more money in an FSA than you plan to use for the entire year. Once you pay for medical expenses such as eyeglasses, hearing aids and prescriptions, you can reimburse yourself out of your FSA.
Consult a tax professional – Make sure you fully understand all the deductions to which you are entitled. Consult with a tax professional to understand your particular situation and to get updates on any changes in tax law that may be coming up.