Medical bills can quickly add up, so it is important to know what financial breaks and tax credit tips are available to you as a senior or as a caregiver to a senior. Are you making the most of the tax credits that you qualify for?
As a senior, there are a variety of medical expenses that can be claimed on your tax return for either tax deductions or credits: dental work, transportation to various doctors’ appointments, health insurance premiums, and long-term care costs should all be reported to your tax preparer.
According to the IRS website, IRS.gov, “Beginning Jan. 1, 2013, you can claim deductions for medical expenses not covered by your health insurance that exceed 10 percent of your adjusted gross income. This change affects your 2013 tax return that you will file in 2014…. There is a temporary exemption from Jan. 1, 2013 to Dec. 31, 2016 for individuals age 65 and older and their spouses. If you or your spouses are 65 years or older or turned 65 during the tax year you are allowed to deduct unreimbursed medical care expenses that exceed 7.5% of your adjusted gross income. The threshold remains at 7.5% of AGI for those taxpayers until Dec. 31, 2016.”
Caregivers are also available to claim certain tax credits. A qualifying relative (such as a spouse, step parent, in-law, or someone who has lived with the patient for the entire year) who is a resident of the U.S., Canada, or Mexico can take advantage of the 7.5% rule which states that you can deduct medical expenses for both yourself and your loved one if the costs exceed 7.5% of your adjusted gross income.
Secondly, caregivers may also be eligible for addition deductions if the patient and caregiver file a joint return (for the current year only), if the caregiver pays for at least 50% of the patient’s living and medical expenses, and if the dependant makes less than $3,700 in gross income. If the patient doesn’t meet these requirements, the caregiver still can use the medical bills paid toward their list of deductions.
Long term care is also eligible for deductions if nursing services are performed in a nursing home or an assisted living facility for a patient who is principally receiving care for medical reasons. If the patient resides in one of these residencies only for custodial reasons, only medical expenses are deductible (which means that meals and lodging are not).
Finally, long-term care insurance is deductible if the contract: 1) is guaranteed renewable, 2) doesn’t provide a cash surrender value, 3) does not pay costs that are covered by Medicare, and 4) provides that refunds, other than refunds upon death, surrender, or cancellation of the contract, and dividends are used only to reduce future premiums or increase medical benefits.
For 2011, long-term care premiums are deductible up to the following dollar amounts: for individuals age 61 to 70 the limit is $3,500, for individuals 71 and older the limit is $4,370.
Tax returns can be complex and confusing. You may want to check out AARP’s website (http://www.aarp.org/money/taxes/aarp_taxaide/) for free assistance and tax tips for seniors through its Tax-Aide program. While accountants and CPA’s may be costly, knowing that you are getting the most from your deductions and that your income, investments, or properties are properly cared for may well be worth your peace of mind.