Caring for an aging parent can be a pricey proposition, costing the average family caregiver at least $5,500 per year in out of pocket caregiving expenses. But you may find a little help this time of year from a source you would probably least expect: the IRS.
Whether you're procrastinating filing your returns because you think you'll owe money or caregiving duties haven't left you time to meet with your accountant, consider yourself lucky just this once! That means there's still time for you to claim caregiving expenses on your 2012 tax returns, which could take a bite out of your tax bill this year.
Below are some areas where paying for a parent's care just may pay off.
If your parent's gross income, excluding Social Security, is less than $3,700 and you paid for more than half of your parent's expenses in 2012, you may be able to claim your parent as a dependent -- just as you would claim yourself, your spouse and your children. If your parent qualifies as a dependent (see IRS Publication 501 to find out), this will reduce your taxable income by $3,700.
Even if you aren't able to claim your parent as a dependent you still may be able to deduct some of the expenses you paid for your parent's care. For example, if you pay someone to care for your disabled parent while you work, you may be able to receive a credit for up to 35 percent of what you paid to a maximum of $3,000 -- which translates to a credit of up to $1,050. See IRS Publication 501 for qualifications for the Child and Dependent Care Credit.
If you helped with your parent's medical costs -- including prescription medications, hospitalizations, dental and/or vision expenses -- in 2012, you may be able to claim a portion of those costs as a tax deduction. Under IRS rules, you can deduct any portion of medical expenses that exceed 10 percent of your adjusted gross income ("AGI"). So, for example, if your family's AGI was $100,000, you can deduct the portion of medical expenses in excess of $10,000. But keep in mind that $10,000 is not just for an elderly parent, but for you and all of your dependents. So, the $3,000 you spent for your teenager's braces or the $1,000 you paid for a root canal also count towards the total amount. For a list of deductible medical expenses, see IRS Publication 502: Medical and Dental Expenses.
In the event that you don't have enough medical expenses to deduct, in some cases you may be able to use your flexible spending account, if you have one, to pay your parent's medical expenses with pre-tax dollars. Be aware that the limit for flexible spending accounts is $2,500 this year. You can spend your flexible spending account on any medical expenses listed in IRS Publication 502 as well as over-the-counter medications prescribed by your -- or your parent's -- doctor.
State Tax Deductions
In addition to the Federal income tax credits and deductions, you may also receive tax breaks on your state income tax, typically in the form of a tax credit that will reduce your AGI -- and thus the money you pay in taxes. Your tax advisor can tell you about any programs available in your state.
If you've already filed for 2012, keep these ideas in mind for next year. Be sure to check for any changes in the tax laws, and also be sure to keep good records. You'll need to be able to document what you've spent and where. I'm clearly not an accountant (so be sure to check with one) but I hope this information helps point you in the right direction!