Tax Deduction for Claiming Elderly Relatives and Dependents
Sign up for our FREE Monthly Email Newsletter
In addition to keeping in the financial know, you may be interested in checking your credit score and report.
¹The credit scores provided under the offers described here use the Equifax Credit Score, which is a proprietary credit model developed by Equifax. The Equifax Credit Score and 3-Bureau scores are each based on the Equifax Credit Score model, but calculated using the information in your Equifax, Experian and TransUnion credit files. The Equifax Credit Score is intended for your own educational use. It is also commercially available to third parties along with numerous other credit scores and models in the marketplace. Please keep in mind third parties are likely to use a different score when evaluating your creditworthiness. Also, third parties will take into consideration items other than your credit score or information found in your credit file, such as your income.
²The Automatic Fraud Alert feature is made available to consumers by Equifax Information Services LLC and fulfilled on its behalf by Equifax Consumer Services LLC.
³Equifax Credit Report Control™ is only available while you have a current subscription to Equifax Complete Premier. Locking your credit file with Equifax Credit Report Control will prevent access to your Equifax credit file by certain third parties, such as credit grantors or other companies and agencies. Credit Report Control will not prevent access to your credit file at any other credit reporting agency, and will not prevent access to your Equifax credit file by companies like Equifax Personal Solutions which provide you with access to your credit report or credit score or monitor your credit file; Federal, state and local government agencies; companies reviewing your application for employment; companies that have a current account or relationship with you, and collection agencies acting on behalf of those whom you owe; for fraud detection and prevention purposes; and companies that wish to make pre-approved offers of credit or insurance to you. To opt out of such pre-approved offers, visit www.optoutprescreen.com/.
4We will require you to provide your payment information when you sign up and we will immediately charge your card $4.95. After that, we will charge the card $19.95 for each month you continue your subscription. You may cancel at any time; however, we do not provide partial month refunds.
Equifax® is a registered trademark and Equifax Complete™ Premier is a trademark of Equifax, Inc. © 2014, Equifax Inc., Atlanta, Georgia. All rights reserved.
Are you feeling the squeeze? If your children are going off to college, or if they are getting married, they’re likely incurring heavy-duty costs. At the same time, your parents may be getting older and starting to need more care, time, and attention—and, perhaps, money. Or you may have siblings or relatives who are incapable of supporting themselves. If any of these scenarios sound familiar, I have a bit of good news for you: you may be able to get some tax deduction help.
It’s not unheard of to be paying over $5,000 per month for in-home care for aging family members. And one friend told me it costs $7,500 a month for her dad’s support in a board-and-care home. This is a huge amount to fit into your budget if you don’t have long-term care coverage.
November is National Family Caregivers Month, and it’s time to give caregivers some help. The government has some resources for caregivers for emotional help, and I may be able to help you with saving money.
Share the cost of long-term care and dependents
In a family comprised of several children, the financial costs of caring for aging parents can be shared by all of the children that can afford it. It’s also possible that other relatives can chip in. With several people sharing the costs, no one is stuck paying more than half of the parent(s)’ support.
And there’s a tax loophole for this situation. Form 2120, the Multiple Support Declaration, allows people who share the support costs to designate who will claim the dependent(s). Family members may take turns, with a different person claiming the dependent each year.
If there is a situation where one person gets a much better tax benefit from this claim, all involved could agree to give that person the dependent—and split the tax windfall. The person who gets to claim a family member not only gets a dependent, he or she gets to be head of household, if he or she is single. And he or she may also take a deduction for the dependent’s medical expenses.
Which medical expenses are deductible?
You probably already know which doctor bills and prescriptions are deductible. But did you know that the full cost of a residential facility might also be deductible? You betcha! Be sure to get paperwork from a doctor spelling out that the person can no longer live independently and must live under supervised care.
With that valuable piece of paper, you can deduct the cost of the rent, the meals, and all the supplies—usually bundled into one fee. Of course, the cost of manicures and personal outings are not included. Be sure to get the monthly or annual statements from the facility showing the total paid.
Note that you may only deduct the expenses you paid—not the total cost paid by all family members.
Special tax trick to dramatically increase medical benefits
Family members should get together at the beginning of each year and decide who gets to claim the dependent. Those who won’t be able to use the medical deductions can gift their monthly payment to the person who will claim the dependent that year.
The person who claims the dependent will pay all the bills—and get the full benefit of the medical expense deductions. Instead of being able to deduct one-third of the cost—say $20,000—the person would be able to deduct the whole $60,000.
In this case, there may be some gift tax forms that need to be filed, but no gift tax needs to be paid.
Making Sure You Get the Adoption Tax Credit
Filing Taxes: Seven Reasons to Adjust Your Withholding
Paying Taxes: How Is Your Vice Taxed?
Saving Money: Could You Benefit from the Savers Tax Credit?
Tax Tips and Tax Consequences of Failed Businesses
Eva Rosenberg, EA is the publisher of TaxMama.com , where your tax questions are answered. Eva is the author of several books and ebooks, including the new edition of Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com and tax courses you might enjoy at http://www.cpelink.com/teamtaxmama.
Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.