Earlier this week the RDTC Tax Help Blog posted this interesting article with tax tips for caregivers. Preparing and filing a tax return is difficult enough for the average taxpayer to figure out, however when providing care to an elderly relative or dependent your tax returns can get even more difficult. Fortunately, as this article explains, the IRS and a few dozen state tax agencies offer lots of credits and deductions to help anyone in this situation.
Claiming a Dependent
In most cases, caregivers can benefit from claiming the person they care for as a dependent. Just remember, you cannot claim an individual as your dependent unless you are providing over half of their support for the year of which you are filing. Additionally the dependent must be either related to you or have lived with you for a full calendar year.
Dependent Care Credit
Since providing care to an elderly relative or permanently disabled friend is more than a full time job, caregivers will often need to hire someone to assist them with the duties. Fortunately, the dependent care credit will allow you to deduct up to 35% of your expenses for hiring such help. Check out IRS Publication 503 for a full run down on the credit, and qualifying factors.
Deduction Qualifying Criteria
The person whom you are giving care to will need to meet certain criteria in order for you take medical expense deductions on their behalf. In most situations you will need to be related to the individual or they will need to be a permanent member of your household, meaning they have lived with you for at least a calendar year. The dependent will need to be a U.S. citizen, and most importantly you will need to have provided more than half of that person’s total support for the tax year. If you are not the only person providing a majority of the care then a multiple support agreement will be necessary.
Multiple Support Agreement
In some cases, more than one person is offering assistance to an individual, which can cause some confusion when tax time rolls around. As a partial solution, the IRS created the multiple support agreement. By filling out IRS Form 2120 – a multiple support declaration – one person in a group of two or more will be allowed to claim the individual in need of care as a dependent (even if they are not the majority care provider), and take the allowable exemptions. This type of arrangement is especially helpful for caregivers who do not make enough money to provide care to a dependent, as this type of situation can raise a red flag in the eyes of the IRS.