Tax Deduction if You Take Care of an Elderly Relative

Are you caring for an elderly relative? The Pew Research Center did a study not long ago showing that 36% of adults in the U.S. provided unpaid care to an elderly relative. If you fall into this category and you meet the requirements, you could qualify for large tax savings for your efforts and expenses. Here’s what you need to consider:

Dependency: If your parent or relative qualifies as your dependent, for 2014 this is worth a deduction of $3,950 against your taxable income. (On your 2015 tax this rises to $4,000.)

You might be able to claim your parent or relative as a dependent if:

• He or she had gross income of no more than $3,950 including pensions, taxable investments and taxable Social Security (most people do not have taxable Social Security).
• You must have provided more than half of the person’s financial support, which includes allowing the person to live with you, rent free.
• The person must be related to you. Parents, stepparents, parents-in-law, siblings, and other close relatives qualify. He or she does not have to have lived with you; for example, you might have supported your mother who resided in a nursing facility.

If you and your siblings together provided support for a parent, only one can claim the parent as a dependent. If no one contributes more than 50%, you may need to check with your CPA to consider a multiple support agreement. Lawrence H. Carlton, a certified public accountant in Bedford, Massachusetts, told reporters at Next Avenue that most siblings in this situation rotate who gets the deduction. Carlton adds that for single taxpayers, even if your elderly relative does not qualify as your dependent, you may be able to file as head of household. Ask your CPA.

Medical Expenses: If he/she had income exceeding $3,950 and you provided more than half of his/her financial support, you may be able to add the person’s medical expenses to yours.

• You must itemize your deductions.
• If you are over 65 before the end of 2014, your medical expenses (combined with your relative’s medical expenses) must exceed 7.5% of your adjusted gross income. If you are 64 or younger, the percentage jumps to 10%.

Expenses include such costs as Medicare part B and D premiums, copays, coinsurance, equipment like ramps, safety rails, wheelchairs, walkers, dentures, hearing aids.

What If You Owe Taxes but Can’t Pay?

Don’t let that stop you from filing on time or getting an extension. The extension does not allow extra time to pay, but it will cause you to incur lower penalties if you don’t pay by April 15th. Failing to pay the tax you estimate you will owe by April 15th will result in a late-pay penalty of .75% per month. But if you also fail to file your return (with or without payment) the IRS will add a stiff 5% per month failure-to-file penalty.

So what to do about that payment? Ask for an installment plan. You’ll need to file form 9465 with your tax return (available at IRS.gov or from your tax preparer). On the form you can ask for certain terms, like a specific monthly payment on a specific due date.

If you owe less than $10,000. approval is automatic, provided you propose to pay the bill off within 36 months. If you owe more or need longer to pay the bill, the IRS will ask for more information. You will have to pay a setup fee of $120, or $52 if you agree to have payments automatically withdrawn from your checking account. You will still be charged interest on the unpaid balance, but at a lower rate (.5% per month).

You can also pay with a credit card. You’ll still be charged a one-time transaction fee by the IRS, plus the credit card’s interest rate. In the long-run, it might be cheaper to get an installment plan with the IRS.

Tax specialist Bill Bischoff advises taxpayers this way: if the reason you can’t pay is a temporary tax crunch, go ahead and file your taxes on time, and pay what you can pay. The IRS will bill you for the balance, a process which should take at least 30 days. When you get the notice, pay it off. Bischoff says the interest will not amount to much.

Teresa Ambord is a former accountant and Enrolled Agent with the IRS. Now she writes full time from her home, mostly for business, and about family when the inspiration strikes.

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