Happy Father’s Day – especially to those members of the sandwich generation. If you have had to arrange for a caregiver for an aging loved one, then you have some appreciation of the enormity of the costs often involved. It’s important, then, not to overlook tax breaks that just might help reduce the economic pain.
An article from Forbes offers a helpful reminder. The costs of a caregiver, under certain circumstances, can be partially tax deductible as medical expenses. After all, they are, in fact, very important and very costly medical expenses. However, conditions for taking the deduction essentially amount to proving that fact to the IRS. So, what are some of these key conditions?
For one, you must document a care regimen for someone who is chronically ill. This means a licensed health care practitioner has to prescribe it. Unfortunately, it can’t be up to your own discretion, but such prescriptions and suggestions are common for aging persons, especially when they suffer from dementia.
Next, there is an expense threshold. Medical expenses are deductible only to folks who itemize, and then only to the extent that the expenses exceed 7.5% of adjusted gross income. Itemizing taxes can be a little more of a burden, but with the associated medical costs involved it is generally easy to qualify. Caregiving expenses are generally rather expensive and include the wages, employment taxes, and actual medical costs along with the associated living costs from meals to even costs of rent, if live-in care is needed.
Finally, this deduction is not without caveats and the IRS watches those who try to abuse it. For example, if the cost of the caregiver is covered by insurance (e.g., long-term care or medical insurance) then you can’t double-dip and claim both costs. This is a complicated issue. There are many moving pieces.
Fortunately, the Forbes article shares some anecdotes from some illustrative cases and tax court challenges. Nevertheless, if you’re using a caregiver now (or will in the future), don’t overlook this potentially valuable deduction.
You can learn more about this topic as well as other strategies on our website under the tab entitled: elder law planning in Virginia. Be sure you also sign up for our complimentary e-newsletter so that you may be informed of all the latest issues that could affect you, your loved ones and your estate planning. However, proper estate planning is not a do-it-yourself project. Why not call us for a complimentary consultation at 757-259-0707.
Reference: Forbes (December 8, 2011) “Tax Breaks For Caregiving Expenses Help Sandwich Generation”