Tax planning tips for seniors
by Francine Huff
There are about 25 million Americans who care for older adults, according to the University of Pittsburgh Medical Center. For a lot of those people, caring for an aging relative can result in many out-of-pocket expenses. That's why it's important for caregivers to become familiar with all the tax breaks available to them. The following tips can help caregivers keep more money in their pockets at tax time.
Claiming Older Adults as Dependents
If you provide more than half of the support for a relative, you can claim him or her as a dependent on your income tax return. The amount of the exemption you can claim for each dependent is $3,650 for 2009. That amount is $150 more than it was for 2008.
Itemize Medical Deductions on Your Tax Return
There are a variety of items related to care giving that you can deduct on your tax return. That includes the cost of doctors visits, surgeries, lab work, in-home services, dental work, and supplies like false teeth or wheelchairs. Deduct expenses related to transporting your aging relative to medical appointments if that person can't travel alone. Those expenses include mileage, parking, tolls, and even meals and lodging charged by a hospital if your main reason for being there is to get medical care.
Deducting Fees for Help
Medical expenses incurred for a relative in a nursing home or rehab can be deducted as long as that person is your dependent. Also keep track of fees paid for in-home help such as nurses, home health aides, and therapists. If you pay for adult day care for a relative who can't look after himself, that can be claimed as well. However, you may not deduct burial fees, health club dues, or toiletries.
Documentation Is Important
Keep careful records and receipts for any items you plan to deduct on your tax return. Be sure to keep receipts for medical costs because you can only deduct medical expenses if they exceed 7.5 percent of your adjusted gross income. For example, if you have an adjusted gross income of $75,000, you need medical expenses for all family members to total at least $5,625 in order to deduct them on your return.
Use Flexible Spending Accounts
Flexible spending accounts (FSAs) allow you to put aside pretax dollars to use for medical expenses. Total up your out-of-pocket costs for the previous year to get an estimate of how much you can expect to spend. The trick is not to put more money in an FSA than you plan to use for the entire year. Once you pay for a medical expense such as eyeglasses, hearing aides, or prescriptions you can reimburse yourself out of your FSA.
Get Help from a Tax Professional
Make sure you fully understand all the deductions to which you are entitled. Consult with a tax professional about your particular situation and to get updated on any changes in tax law that may be coming up.