During tax season, it can sometimes seem as if your entire previous year becomes a question mark. What can you claim, how can you claim it, and how much can it be claimed for… all questions that become repeatedly asked of all life’s situations.
One particular situation that has multiple answers is senior care. For those who are taking care of their elderly mother, father, or grandparent, it’s important to know exactly how this care can be reported for taxes so that the benefits are maximized.
If your senior dependent relies on you for more than half of their support, you can claim them as a dependent. This does have some stipulations though. The dependents taxable income must be less than $3,800, Social Security not included, and this includes an IRA or another retirement income that is considered taxable. Supporting a senior counts as either providing for them inside your own home, or paying for more than half of their nursing home or in-home assistant care if they live separately.
In addition to filing as a dependent, the medical expenses can also be deducted from taxes. The amount you can claim needs to be medical expenses you paid, and expenses that are not refundable by insurance, and this includes elder care such as long-term care and nursing services. However, the deduction is limited to only costs that are over 10 percent of your adjusted gross income. Anything below this amount will not be considered for a the deduction.
In order to file the most efficient way, it’s suggested that you keep all receipts and records of care because these deductions do need to be itemized. You may also include your own medical expenses with the senior expenses, so it’s wise to keep track of those costs as well. There are two forms you will need before filing your dependent care credit for senior care : the Form 1040, and the Form 2441.
Last but not least, it’s important to know the difference between a tax credit and a tax deduction while filing for dependent care credit and medical expenses deductions. A deduction lowers the amount of your income that will be taxed. For example, if you make 40,000 and have a deduction of 2,000, then you will only be taxes on the 38,000 dollar amount. Whereas tax credits give you a dollar-for-dollar reduction in your tax liability, meaning they remove the cost of taxes you owe for each tax credit you receive. Every tax option has its own requirements and regulations, so researching or consulting a professional before making a choice on your senior care claim is advised.