Caregivers, Don't Overlook These Tax Benefits

Taking care of another person, be it an aging parent, disabled child or extended relative who cannot live independently, can take its toll on the caregiver mentally, physically and financially.

It is important to be aware that help is available to reduce the stress of these three commonly affected areas. Particularly, tax benefits are frequently overlooked. Mental and physical complications often take precedence, as the caregiver's financial strategies take a back seat to that of the individual receiving the care. However, knowing about assistance and getting organized now can help exponentially.

Unfortunately for many caregivers, their own financial situation is at the bottom of their priority list as they dedicate so much time, energy and money to taking care of someone else. It's exhausting in many ways, and searching for tax deductions can seem like just one more obstacle that is not worth the effort. Additionally, guilt and familial obligations can deter some caregivers from seeking out financial breaks.

If this sounds familiar, take a moment to reframe the conversation: If you are bogged down by financial concerns of your own, you are detracting from your own wellbeing and that of the individual you provide care to. Yes, it takes time to get organized; tax rules are complicated and often appear convoluted. But, with the help of a tax attorney, accountant or financial assistant — particularly one familiar with eldercare law and tax issues — you can take advantage of tax credits and deductions without too much additional stress.

Areas Where Tax Deductions/Benefits May Be Found

1. Dependent Status:

See if the individual you provide care for is eligible to become a dependent on your tax return. If they are a relative whose income (ex-nontaxable SS/disability) was below a certain amount and you provide more than 50 percent of the individual's care, the individual is likely eligible. Possible tax exemption amount: roughly $3,900

2. Dependent's Medical Costs:

If the individual under your care qualifies as a dependent on your tax return, you can claim medical deductions. The medical costs must represent more than 10 percent of your adjusted gross income to meet the criteria to receive a deduction. Keep in mind the following could be deductible:

Dental care
Transportation to/from medical appointments
Insurance premiums
Long-term care services

Possible tax deduction amount: deductions are itemized

3. Tax Credit For Child or Dependent Care:

You'll need to fill out

Form 2441

for this credit, but it can be a big saver. Possible amount: up to $3,000

4. Flexible Spending Accounts

If you as a caregiver receive a flexible spending account, you can use it to cover expenses for both dependent and non-dependent relatives. However, you must be responsible for 50+ percent of their care. Federal Cap: $2,500 in 2014

5. Home-Related Expenses:

From mortgage interest to health-related home improvements to energy-saving home improvements (a great place to start is www.energystar.gov for energy-related information), there are tax deductions/credits that are available if you know where to look..

Something To Keep In Mind

If the caregiver receives monetary compensation for providing care, other tax obligations are likely to apply to the individual receiving care. These are called "household employer tax obligations," sometimes known by the nomenclature of "nanny tax." If you think this might apply to your situation, the person under your care will need to obtain a Federal Employer Identification Number, withhold SS and Medicare, track all taxes, file federal estimated taxes (1040-ES), file state employment taxes, prepare/distribute W-2, prepare/file W-3 and W-2 Copy A, and prepare a Schedule H.

Remember: You are worth it. Your financial well being influences other areas of your life and subsequently the life of the person you work so tirelessly to help. Take the time and effort to reach out to the resources there to help ease the burden.

Market News and Data brought to you by Benzinga APIs