Tax Bill for a Family of 4 $100,000

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As a family unit caregiver, you went into the chore knowing it would have much of your fourth dimension.

Yous may not have expected information technology to accept quite so much of your money. The average family caregiver spends about $7,200 a yr on household, medical and other costs related to caring for a loved one.

Fortunately, there is some light at the end of the tax twelvemonth: federal tax credits and deductions that apply straight or indirectly to caregiving costs. Here are some ways family caregivers potentially can reduce their taxation brunt.

Taxation credit for 'other dependents'

Taxpayers have long been able to claim a taxation credit for children up to age sixteen. Dissimilar a deduction, which lowers your taxable income, a tax credit directly reduces your tax nib. The 2017 federal revenue enhancement law expanded the Child Tax Credit (CTC) to allow taxpayers to merits up to $500 as a nonrefundable "Credit for Other Dependents," including elderly parents.

Nether this provision, in effect through the 2025 tax yr, the Internal Revenue Service allows family unit caregivers to claim some individuals related by adoption, blood or marriage — and even some friends — as "other dependents" on their federal revenue enhancement return equally long as both parties meet these IRS requirements:

• Legal residency. Your loved one is a U.South. citizen, U.South. national or legal U.Due south. resident and has a valid identification number — a Social Security number, Individual Taxpayer Identification Number or Adoption Taxpayer Identification Number.
• Income. Your loved one's gross income is non greater than that tax year'southward cutoff amount, which in 2021 is $4,300.
• Dependence on you. Your loved one lives with you and you pay more than than 50 percent of that person's living expenses, including wear, food, lodging, medical and dental intendance, recreation, transportation and other necessities. Ii or more people can split these expenses, but only one tin can merits the person as a dependent, and that person must pay at to the lowest degree 10 percent of the support costs. This is called a "multiple support agreement."
• Living arrangements. You may claim a friend, honorary auntie or other unrelated loved one as a dependent, but he or she must have lived with you the unabridged yr.
• Married dependent consideration.You can merits a dependent who is married but if he or she does not file a articulation render with their spouse or files a joint return only to get a refund of income revenue enhancement withheld and does non claim any other credits or deductions
• Not-dependence. You can claim a dependent only if you are not a dependent of another taxpayer.

The IRS has an interactive tool to help you lot determine if a dependent qualifies you lot for a tax credit.

Tips for filing

• Keep detailed records. For example, create a log to show the dependent lived with you for at to the lowest degree half the year.
• Keep receipts and keep a written log of all related expenses. This tape will ensure you don't miss any allowable deductions, and it tin serve equally part of your documentation if you lot are audited.
• Be aware that calculation a dependent makes them role of your household, which could take implications in areas such as Medicaid eligibility or the toll of wellness insurance purchased through the Affordable Care Deed marketplace.

Bonus: Head of household status

If yous are a single taxpayer, or married but living apart from your spouse, adding a dependent relative who lives with you could bump you up to caput of household. The alter in status raises your standard deduction for the 2021 tax year to $eighteen,800, up from $12,550 if yous are single or married merely filing separately. Call back that taking the standard deduction means y'all can't claim any personal exemptions.

A parent does not need to live with you for you to claim head of household condition. Any other relative must accept lived with you lot for at to the lowest degree half of the tax year.

If yous use a multiple support agreement to claim your dependent, you cannot use the dependent to file as a head of household.

Deduct a dependent'due south medical expense

You can deduct the money y'all paid to cover your loved 1's unreimbursed medical costs if the qualified medical expenses of everyone claimed on your taxes totals more than vii.5 per centum of your adjusted gross income for that year and if your full itemized deductions are more than your standard deduction.

Check IRS Publication 502 to encounter what is and isn't deductible. Here is a sample of acceptable deductions:

• Activities for older people with special needs
  
• Acupuncture
• Developed twenty-four hours intendance or a home health care worker if you lot work outside the house
• Assisted living costs when incurred for medical reasons
• Bandages
• Copayments and deductibles
• Eyeglasses
• Hearing aids
• Habitation and vehicle modifications needed for safety or mobility
• Insulin
• Physical therapy
• Prescribed medicines and equipment, such equally a pikestaff or walker
• Professional health aide costs during respite care
• Transportation for medical appointments or services

Not deductible: Items and services that benefit the household.

Flexible spending and health savings accounts

Flexible spending accounts (FSAs) and wellness savings accounts (HSAs) accept money from your earnings earlier taxes are deducted and eolith it in a medical savings plan yous tin can use to pay out-of-pocket health care costs for yourself and dependents.

You may utilise 1 of these accounts to pay your dependent's medical bills, copays, insurance deductibles, over-the-counter medical supplies, personal protective equipment and even for some treatments that your insurance doesn't cover. However, if you pay using an FSA or HSA, you cannot take a tax deduction for that bill equally a medical expense.

Child and dependent care credit

Dissimilar the Child Tax Credit or Credit for Other Dependents, which confer a taxation break based on the existence of a qualifying child or other dependent, the Child and Dependent Intendance Credit is based on coin you lot spend to intendance for that person or people. For the 2021 tax year, yous tin can claim a portion of upwardly to $4,000 in caregiving costs for one person and up to $8,000 for two or more than.

Oddly, given the proper name, this taxation credit does not require that your loved one qualify as your dependent in certain circumstances. But in that location are rules for when you can merits it. Amidst them:

• Cohabitation. The person you lot are claiming the credit for must have lived with you for at to the lowest degree six months during the tax year.
• Dependency. The person is your dependent or could exist except for having gross income higher than the immune maximum, which is $4,300 in 2021, or filing a joint tax return with a spouse that year.
• Incapacity. The person is physically or mentally unable to care for himself or herself.
• Necessity for employment. You pay an adult solar day care program, child care program or a home wellness worker to aid your loved 1 so you can go to work or expect for work.
• Spousal qualifications. If you are married, your spouse as well must piece of work, exist a student or exist disabled for you to qualify for this credit.

If you plan to claim whatsoever of these credits or deductions, be sure to outline all of your costs and get someone to aid y'all with your taxes, says Lynnette Lee-Villanueva, vice president of AARP Foundation Tax-Adjutant, a free tax-preparation service staffed by AARP volunteers. Tax-Adjutant has more 5,000 sites nationwide that are open annually during tax season and provides an online site locator to find one near you.

This commodity, originally published Dec fifteen, 2017, has been updated to reflect taxation laws and policies for the 2021 tax twelvemonth.

Learn More than About Caregiving

• Getting financial assistance for caregiving is possible
• What caregivers should know about managing a loved ane's money
• How caregivers can avert guardianship, conservatorship and probate court

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Source: https://www.aarp.org/caregiving/financial-legal/info-2017/tax-tips-family-caregivers.html

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