Tax season is again upon us in the United States, as it is every spring leading up to April 15. For caregivers, the added stress of completing tax forms, tallying up credits and deductions and calculating taxes seems like it is the straw that could break the camel’s back. We offer some tax guidance on how to prepare your tax returns and get the most back that the law will allow – and reduce some stress.
1) Keep Up With Expenses
Caregivers invest a lot in their work. Whether you are professional or a family caregiver, keep track of anything on which you spend your own money. If you provide transportation, keep gas receipts and mile logs for each trip you take for work. If you purchase food or pay utility bills, they can also become credits and deductions. Supplies for crafts, fees for parking at a hospital in your work, and work uniforms also can help get you funds back. In other words, note everything on which you spend personal money and keep receipts in case of an audit.
If you employ a caregiver, for tax purposes you should also track expenses. Anything for which you reimburse the caregiver is your expense not theirs, so ask for copies of receipts and keep bank statements handy. Depending on how you employ a caregiver, you may be required to pay a lot in taxes, or simply pay their assisted living or nursing home expenses.
Later in this article we explore how to plan for that. If you make modifications to your home for the senior person, such as installing a special tub or adding a moving seat to a staircase, keep receipts for the modifications. You may be able to claim them as a medical deduction, as well.
2) Caregiver Tax Deductions
There are several ways to claim caregiver costs. If you pay for caregiving primarily by paying an assisted living or nursing facility, it can be considered a medical deduction or credit. [This is going to be covered in an upcoming web seminar] If you pay a caregiver differently, you face a more complicated tax situation.
Employing a caregiver full-time, such as while you are at work, or if you live in a different state from your loved one, means you are creating a contract with the caregiver. You should resolve the terms of this contract before caregiving begins. You may pay a flat sum to the caregiver for a certain number of hours worked, if he or she already has a caregiving service worked out and tends to their own taxes. In some cases, you may be subject to payroll taxes throughout the year. Consider these things when you write a paycheck to your caregiver, or possibly quarterly during the year. (There are free internet tutorials linked below, or you can purchase tax software at low cost.)
Caregiving gets a fairly broad definition under the tax laws. A housekeeper who visits your home to clean and cook meals while you are away, even if they give no specific care to a senior at your home, such as medical care or transportation to doctor appointments, counts as a caregiver. This is important if you pay a housekeeper to come only on occasion, such as when you vacation or must go into the hospital yourself. Note any and
all expenses that help you care for a senior in your life.
Your overall taxable income and the amount you spend on caregiving determines the best way to claim caregiver expenses. The tax code changes often so be sure to observe modifications or follow step 3.
“The wages of sin are death, but by the time taxes are taken out, it’s just sort of a tired feeling.”
3) Find an Expert
Not everyone has the time, energy or expertise to manage a difficult tax situation. Consider taking your documents to a tax expert. During tax season, many companies offer reduced fees or specials for repeat customers. Sticking with one accountant, if you have one, is probably best, since that person will be most familiar with your financial situation. Some tax preparation fees can be high, especially if you file in multiple states. You can also use free or low-cost tax preparation software, which guides you through online filing of your taxes.
Experts are helpful because they stay current on changes to the tax laws. These experts evaluate your financial information and determine how best to file your taxes and get the best results and refunds. To achieve this in future years, follow step 4.
4) Advocate for More
Despite the tax breaks now available to cover caregiving costs, many caregivers know that these benefits are not always enough to cover the cost of caregiving. If costs are not reduced by insurance or savings, caregiving is expensive. Working to improve tax laws, insurance coverage, healthcare costs, and caregiver rights means that in future years costs and taxes on those expenses may change for the better. Contacting local representatives, exercising your right to vote and educating others in your situation are ways you can effect change.
Tax time is not a favorite time for anyone, but it does not have to be a miserable experience. By following this tax guidance steps as a senior caregiver, you can reduce stress at tax time and achieve a good result from your tax returns.
Hawkins, Chris. Caregivers and Tax Credits. SeniorLiving.org, June 6, 2012. Available at http://www.seniorliving.org/investing/caregiver-tax-credits/ Retrieved March 10, 2017
Karen Hutchinson. Withholding Taxes: How to Calculate Payroll Withholding Tax Using the Percentage Method. Youtube.com, March 20, 2014. Available at https://www.youtube.com/watch?v=VkmlfgHvlHU Retrieved March 10, 2017.
Saenz, George. Claiming tax credit for a caregiver. Bankrate.com, January 28, 2010. Available at http://www.bankrate.com/finance/taxes/claiming-tax-credit-for-a-caregiver.aspx Retrieved March 10, 2017.
Simon Sez IT. QuickBooks Training Tutorial- Part 45- How to Pay Payroll Taxes. Youtube.com, August 7, 2014. Available at https://www.youtube.com/watch?v=IFJtYC7cCng Retrieved March 10, 2017.
TeachUComp. Accounting Tutorial Payroll Taxes Training Lesson. Youtube.com, June 2, 2011. Available at https://www.youtube.com/watch?v=Ug7vxOly9LU Retrieved March 10, 2017.