Claim Your Elderly Parent as a Dependent on Your Taxes
The income of the person you are claiming cannot exceed the personal exemption of $3,400 (in 2007) excluding Social Security and tax exempt interest. They must be a relative or have lived with you for the past year, must be a resident of the U.S., Canada or Mexico, and not filed a joint tax return with a spouse. IRS Publication 501 gives details on dependency requirements, including caregiver income phase-out levels.
In addition, you must be providing over half of their financial support for food, housing, medical, transportation, etc. If the person lives with you, include a reasonable percentage of your mortgage, utilities and other household costs in determining your level of support. Those who are in an assisted living or long term care facility can qualify as dependents if the income and support levels are met.
Often more than one family member is involved in the support. The one who is providing more than 50% of the support is entitled to claim the dependent. Be sure everyone is on the same page so you don’t run into trouble with more than one person claiming the individual. Arranging to alternate years or establishing a Family Limited Partnership might options to consider.
Deduct Medical Expenses From Taxes
Medical expenses are deductible as an itemized deduction on Schedule A of the 1040 to the extent they exceed 7.5% of adjusted gross.
In the words of IRS Publication 502: “Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. They include the costs of equipment, supplies, and diagnostic devices needed for these purposes. They also include dental expenses. Medical care expenses must be primarily to alleviate or prevent a physical or mental defect or illness. They do not include expenses that are merely beneficial to general health, such as vitamins or a vacation.
Medical expenses include the premiums you pay for insurance that covers the expenses of medical care, and the amounts you pay for transportation to get medical care. Medical expenses also include amounts paid for qualified long-term care services and limited amounts paid for any qualified long-term care insurance contract.”
If you buy equipment or make home improvements, they may be deductible IF they are for relief of sickness or disability not just convenience or transportation, i.e. ramps, railings, wheelchairs. You can also include in medical expenses what you pay for prescribed medicines and drugs. Long term care facility monthly fees attributable to medical expenses are also includable.
Keeping good records, including mileage and supplies, may allow you or your parent to qualify for some tax relief yearly or to plan ahead to consolidate expenses for another year. A strategy dubbed “doubling up” on deductible expenses uses the standard deduction one year and itemized deductions the next.
Dependent Care Credit
You may be able to claim this credit if you pay someone to care for your dependent or your spouse who is not able to care for him/herself. To qualify, you must pay these expenses so you can work or look for work. The credit can be up to 35% of your expenses. IRS Publication 503 contains full information and worksheets and also discusses the employment tax rules for household employers. Your state may be one that also provides tax credits or deductions which build on the federal credit.
Reimbursement Accounts
If you are working at a company that offers a plan that allows for pre-tax deduction of dependent care and/or health care expenses, you can use those dollars for items not eligible for the Medical Expense Deduction or for relief if you will not be able to itemize. Tax law changes have added non-prescription medications, like aspirin and cough medicine, to the list of reimbursable items. Some plans require you to “use it or lose it” each year while others allow a carry-over to the next year for unused funds. Be sure to check out the details and plan accordingly.