My husband and I are retiring and we’re caring for my husband’s mother. We’re getting ready to file our taxes and want to ensure we take advantage of all available tax breaks. Can you walk us through some important ones?
Planning in Pasadena
Good news! There are several important tax breaks for seniors and for those who care for a loved one. Here’s what you should consider, according to the IRS and AARP:
Standard Deduction for Seniors
If you don’t itemize deductions, you can get a higher standard deduction amount if you and/or your spouse are at least 65 years old or older.
Taxable Amount of Social Security Benefits
Be careful when you calculate the taxable amount of your Social Security. Use the Social Security benefits worksheet found in the instructions for IRS Form 1040 and Form 1040A, and then double-check it before you fill out your tax return.
Credit for the Seniors or Disabled
You must file using Form 1040 or Form 1040A to receive the Credit for the Elderly or Disabled. You can’t get the Credit for the Elderly or Disabled if you file using Form 1040EZ. Make sure to apply for the credit if you qualify. It’s based on your age, filing status, and income. If you’re:
Either 65 years or older; or under age 65 years old and are permanently and totally disabled AND your income on Form 1040 line 38 is less than $17,500, $20,000 (married filing jointly and only one spouse qualifies), $25,000 (married filing jointly and both qualify), or $12,500 (married filing separately and lived apart from your spouse for the entire year).
Also, the non-taxable part of your Social Security or other nontaxable pensions, annuities or disability income must be less than $5,000 (single, head of household, or qualifying widow/er with dependent child); $5,000 (married filing jointly and only one spouse qualifies); $7,500 (married filing jointly and both qualify); or $3,750 (married filing separately and lived apart from your spouse the entire year).
Want more tips and tricks like these for caregivers and aging adults? If you’re not registered for Dari, sign up now and stay in-the-know.
Calculating the Credit
Use Schedule R (Form 1040 or 1040A), Credit for the Elderly or Disabled, to figure the amount of the credit.
You could also be eligible for free IRS tax return preparation if you have low-to-moderate income.
Deductions for Caregivers
According to the AARP, The average family caregiver can spend more than $7,000 annually on household, medical, and other costs associated with caring for a loved one. Thankfully, there are some federal tax credits and deductions to help you!
A 2017 federal tax law expanded the Child Tax Credit (CTC) to allow taxpayers to claim up to $500 as a nonrefundable “Credit for Other Dependents,” including elderly parents.
From now until at least 2025, the IRS will allow family caregivers to claim some individuals related by adoption, blood or marriage — and even some friends — as “other dependents” on their federal tax return if both parties meet these IRS requirements:
- Legal residency. Your loved one is a U.S. citizen, U.S. national or legal U.S. resident and has a valid identification number — a Social Security number, Individual Taxpayer Identification Number or Adoption Taxpayer Identification Number.
- Your loved one's gross income is not greater than that tax year's cutoff amount, which in 2021 is $4,300.
- Dependence on you. Your loved one lives with you and you pay more than 50 percent of that person's living expenses, including clothing, food, lodging, medical and dental care, recreation, transportation and other necessities. You can split these expenses with someone else, but only one of you can claim the person as a dependent, and that person must pay at least 10 percent of the support costs. It’s called a “multiple support agreement."
- Living arrangements. You may claim a friend, honorary relative, or other unrelated loved one as a dependent, but they must have lived with you the entire year.
- Married dependent consideration. You can claim a dependent who is married only if they don’t file a joint return with their spouse, or files a joint return only to get a refund of income tax withheld and doesn't claim any other credits or deductions.
- Non-dependence. You can claim a dependent only if you aren't a dependent of another taxpayer.
- Keep detailed records. Be prepared to show proof an adult dependent lived with you at least for the year.
- Keep receipts of all your related expenses. This can help you avoid missing allowable deductions and help in case of an audit.
- Note that adding a dependent makes them part of your household and this could have implications in areas such as Medicaid eligibility or the cost of health insurance purchased through the Affordable Care Act marketplace.
I can deduct that?
If you have unreimbursed medical expenses for a loved one that amount to more than 7 ½% of your adjusted gross income, you can deduct the cost of certain items, including:
- Activities for older people with special needs
- Adult day care or a home health care worker if you work outside the house
- Assisted living costs when incurred for medical reasons
- Copayments and deductibles
- Hearing aids
- Home and vehicle modifications needed for safety or mobility
- Physical therapy
- Prescribed medicines and equipment, such as a cane or walker
- Professional health aide costs during respite care
- Transportation for medical appointments or services
- Note: You can’t deduct items that benefit the entire household.
Healthcare spending flexibility:
- If you have a flexible spending account (FSA) or health savings account (HSA), you can use this pre-tax money to cover healthcare costs for yourself and your dependents.
- If you use either account, you can’t take a tax deduction for the expense for which you use it.
If you still have questions about making the most of your caregiving deductions, Just Ask Me.
**Note, this information is not official tax advice. Please consult your tax professional before making any decisions.**