As our society ages, the multi-generational household grows and for many families this means they are caring for aging parents, as well as having younger children in the household. The recession has also been a factor in the growth of the multi-generational family.
While caring for aging parents can be financially challenging, there may be some tax deductions available to help alleviate a portion of the financial burden. You should let your tax preparer know that you're providing care for your aging parents.
Some examples of tax deductions and strategies are:
- Exemptions: If your aging parent's income (excluding Social Security) doesn't exceed the exemption amount you'll be able to reduce your taxable income by $3,700 (2011 figure). You must provide over half of their support and if they don't file a joint return, this exemption should be available to you on your tax return.
- Deductions: The most obvious deduction would be for medical related expenses, such as, co-pays, prescriptions, eye glasses, medical devices, etc. Of course, you can only deduct the amount of the medical expenses that exceed the 7.5% of your Adjusted Gross Income. But if you're caring for an aging parent you most likely are spending a great deal on medical care.
Another often overlooked medical expense is home improvements that are medically necessary. This would ramps, accessible tubs, wider doorways, lowered countertops, stair lifts, to name a few. If these improvements are made in your parent's house they may be fully deductible. If they made in your primary residence they may be deductible to the extent that the cost exceeds the increase in value to your home.
- Dependent Care: If you pay someone to care for your aging parent so that you are able to work, you may qualify for a tax credit. Another option is to investigate your company's benefit programs to find out if they offer a Flexible Spending Account or Health Savings Accounts. You contribute to these accounts with before tax dollars and are permitted to pay for qualified medical expenses from the account. If you're the 28% tax bracket, for every $1,000.00 you spend, you'll be savings approximately $326.00, or 32.6%.
If you're a small business owner you should investigate setting up such a plan for your company.
Again, let your tax accountant know that you're caring for an aging parent. If you need a proactive tax advisor please contact us at 818.369.7900. You may also request from our website free educational materials on tax savings for small businesses and with aging parents you'll also want to make sure their estate planning is up-to-date.