Income Tax Tips For Caregivers To Save Money
Tax Tips For Caregivers: DEDUC TIONS →
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Amy Sweezey
Filling out forms and paying taxes can be complicated, especially when you’re a caregiver. If you aren’t a financial advisor or accountant, some tax tips for caregivers may be just what you need when trying to determine what you can and can’t claim. Unfortunately, a lot of caregivers miss out on tax credits and deductions every year because they don’t realize how much they are spending taking care of a loved one.
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Know what you spend Keeping good records is key to knowing what you’re spending and how you can claim the tax benefits you deserve. In the 2017 study The Journey of Caregiving conducted by Merrill Lynch and AgeWave, 52% of caregivers said they had no idea how much they’d spent on caregiving-related expenses. Surprisingly, 45% couldn’t estimate the amount spent in the last 30 days. Besides keeping track of expenses, it’s important to know the difference between a tax deduction and a tax credit. A tax deduction lowers your taxable income while a tax credit directly reduces your tax bill.
Source: IRS.gov
CREDITS Establish whether or not you qualify for these specific caregiving credits: →
→ An additional credit for caregivers is under scrutiny now. A bipartisan bill, the “Credit for Caring Act,” was introduced in May 2021 in the House and Senate which would provide up to $5,000 for caregivers if passed. This tax credit for eligible family caregivers who work could offset the cost of home modifications (like ramps or smart-home technology) or adult day care. If you’re still confused, get help from a professional. Tax attorneys, qualified financial advisors and many accountants can provide advice on the best ways to save money on your taxes. Monday, April 18, 2022 is the deadline to file a tax return for 2021.
Determine if you can claim your loved one as a dependent. There are specific IRS rules related to how much is spent caring for a relative whether living inside or outside the same house. Caregiver tax deductions can be applied to non-relatives, too. If you are caring for a non-relative as part of your household, you may still be eligible for benefits. When there are multiple caregivers sharing responsibility, decide who will receive the tax break. If several siblings share the cost of a parent’s care, only one sibling can claim the parent as a dependent. Sometimes you can use your Flexible Spending Account (FSA) to pay for a relative’s medical expenses. If you work as a nanny, senior caregiver or other domestic helper, ascertain if you are considered an employee or an independent contractor. Those two titles differ and the IRS requires different forms and different taxes. If you are paid more than a specific amount (in 2021 it’s $2,400) for caregiving in a year, the IRS considers you a household employee.
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Other Dependent Credit: This allows you to claim a loved one (that is not your child) as a dependent with a credit up to $500 depending on income. You don't need to be living in the same house as this dependent to receive this credit. Child & Dependent Care Credit: Many people think this only applies to child daycare costs, but you may be eligible for this credit if your loved one attends a senior care facility during the day or has in-home care. Medical expenses deduction: If your loved one qualifies as a dependent, you may be able to deduct a portion of their medical expenses if you pay for them. Don’t forget to keep all the receipts from the pharmacy, doctor and insurance company. Many places will send a printed list of expenses at the end of the year if you ask.
Source: Jo Willetts, Director of Tax Resources forJackson Hewitt
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