Uncle Sam has a few tax breaks this season to ease pressure on the so-called Sandwich Generation.
Demographic trends and the sour economy are forcing families to come together to provide for older relatives. More than one of every eight Americans between the ages of 40 and 60 is raising a child and caring for a parent at once, according to a recent Pew Research Center study. Another 7 to 10 million adults are caring for aging parents long-distance. A recent survey by caring.com shows that more than 40% of caregivers are spending more than $5,000 a year to care for an elderly family member. The same survey found that more than a third of caregivers were forced to quit jobs, take early retirement, reduce hours, or take a leave-of-absence to provide elder care themselves.
Unfortunately, many taxpayers remain unaware that tax laws allow them to write off some of the expense of elder care. “Whether you’re providing that care yourself, or you’ve hired a caregiver, you should take advantage of the tax breaks that are a true gift in these troubled economic times,â€ says Peter Ross, CEO of Senior Helpers, a leading provider of in-home senior care.
If you’re caring for elderly parents, here are two things you can do this season to reduce your tax burden, according to Perspective Accounting Services, a Raleigh, North Carolina tax preparation consultancy:
1) Claim your parent as a dependent
Your parent’s income, excluding Social Security, must be less than the amount of the personal exemption. For 2010, the personal exemption was $3,650. For 2011, it’s $3,700. In addition, you must provide more than 50% of a parent’s financial support to claim them as a dependent. You can claim more than one parent as a dependent if both meet the income and support guidelines. If a parent lives with you, you can include a percentage of your mortgage and utilities.
2) Deduct your parent’s medical expenses
If you contribute to a parent’s health care expenses and pay the health care provider yourself (versus giving your parent the money to pay), you may qualify to deduct costs–even if you can’t claim the parent as a dependent. To claim this deduction, you must provide at least 50% of your parent’s financial support. You don’t have to meet the income threshold. This deduction is limited to medical expenses that exceed 7.5% of your adjusted gross income. Nursing home costs, in-home health care, dental care, and prescription drugs are some of the expenses that qualify. Also: You can include your own unreimbursed medical expenses when calculating these total costs.
Before making any deductions on your taxes, be sure to consult a trained tax consultant.