Tax season is rapidly approaching, and with it comes an opportunity for family caregivers to take advantage of some much-needed tax breaks. On December 23, 2010, The Wall Street Journal's SmartMoney Blog took a look at a few of the tax breaks available to the 62 million Americans caring for an aging spouse or loved one during the 2011 tax season.
To qualify for most tax credits, a caregiver (and recipient) must meet certain eligibility criteria. In some cases, a caregiver may take a "qualifying relative exemption" of up to $3,650, but the following criteria must be met: The spouse or relative being cared for must reside with the caregiver year-round (or meet IRS relative standards), and the caregiver must provide more than half of the person's total support throughout the year. Further, it cannot be a person the caregiver claims as a dependent child, and the individual receiving care must have a gross income less than $3,650.
Like your own medical expenses, medical expenses incrued on behalf of another person qualify as a deduction, provided that the caregiver provides more than half of the recipient's support during the year and the total amount of expenses is at least 7.5% of gross annual income. In order to qualify for this deduction, a multiple support agreement must be in place designating the person who will be claiming the recipient as a dependent (IRS Form 2120).
Some families find it difficult to meet the 7.5% threshold; however, long-term care insurance premiums do qualify in many cases. Out-of-pocket fees for assisted living, nursing homes, home senior care, adult day care and the like are also eligible, provided the facility or service provider is licensed. For a list of other qualifying expenses, see IRS Publication 503.
A few state-specific deductions are also available, according to the SmartMoney Blog. Twenty states offer caregivers the ability to deduct a portion of what was claimed against federal income tax on state income taxes.
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