With the tax-filing deadline bearing down, many of us are wrestling with financial issues particular to elder care. Opportunities to lower tax bills abound, thank goodness, but the details are often complicated or confusing — and most seniors can’t afford to leave money on the table. Here are a few details to keep in mind this year.
Medical Expenses
Deducting one’s medical expenses isn’t technically difficult. But younger taxpayers rarely get the deduction because allowable expenses must exceed 7.5 percent of adjusted gross income before any benefit kicks in. Seniors, though, typically live on lower fixed incomes while incurring far greater medical costs.
In addition to insurance premiums and prescription drug bills, elderly taxpayers may also be able to deduct the costs of wheelchairs, dentures, premiums for long-term care insurance and many other items. The Internal Revenue Service spells out the details at its Web site.
Medical care, “especially if someone’s paying for a nursing home themselves, can be ridiculously expensive,” said Joy Child, a tax partner with Alexander, Aronson, Finning and Company in Westborough, Mass. The bright side? “Those costs can completely wipe out a person’s income tax liability,” she said. Senior housing facilities often report the medical portion of a resident’s total bill for tax purposes, she noted.
Hiring In-Home Care
A tax reporting challenge may arise when families hire home care for an elderly parent. Many families find assistance through an agency, but some choose to deal directly with an aide. In such a situation, the home care aide might legally be an employee, not just an independent contractor.
How to tell the difference? “If they only work for you, and you control what hours they come in, they’re really your employee,” said Ms. Child.
What are the consequences? The senior or the family, depending on who pays the bill, must withhold income taxes and payroll taxes — the employee’s contribution to Social Security and Medicare — while make a matching contribution, as well as file quarterly and annual returns.
To the extent that a home care aide provides nursing services — dispensing medication, bathing and grooming, and so on — their costs qualify as deductible medical expenses.
Senior Credits, Deductions and Nontaxable Income
A credit for the elderly: Adults 65 and older may qualify for a special credit as long as their incomes don’t exceed certain thresholds, which vary by filing status. Learn more at the I.R.S. Web site.
Increased standard deductions: Seniors who don’t itemize their deductions receive an additional $1,100 to $1,400 for their standard deduction, depending on filing status.
Taxable Social Security: Seniors who receive significant income beyond Social Security — pensions, wages, taxable and nontaxable investment income — may find that some of their Social Security is taxable. To figure out how much, the I.R.S. provides a worksheet.
State real estate tax credits: Many states offer home-owning seniors a partial rebate of their real estate taxes. Check with the applicable state taxation departments.
Free Help With Taxes
Seniors can get help figuring out their taxes from the AARP Foundation, which sponsors Tax-Aide, a free tax preparation service for people 60 and older.
About 35,000 volunteers at the organization prepared 2.6 million tax returns in 2010 at thousands of locations across the country. The I.R.S. provides the software, allowing preparers to file electronic federal and state returns free of charge.
“I have a big prejudice against people having to pay to get a tax return done,” said Roger Ditman, 69, volunteer site director at St. Margaret’s House in Lower Manhattan. Mr. Ditman, a retired I.R.S. enforcement officer, reviews about 250 returns prepared at the housing complex.
Tax-Aide staffers decline overly complicated returns to keep the process moving. Most clients are in and out within an hour.
The Conversation Starter
Family conversations about money rarely unspool smoothly. Parents often don’t want their children meddling in their finances, and adult children don’t always care to know how much their parents have or what they’re doing with it.
But discussions about the financial well-being of aging parents are necessary. Now is an excellent time to open the dialogue — and perhaps that’s the only upside to this trying annual rite.
“Tax season is a natural opening to start having these conversations,” said Kathleen Burns Kingsbury, a consultant in Easton, Mass., who works with financial advisers to improve communication with their clients. “People can feel a greater sense of control after the conversation, even when they’ve given up responsibility, because there’s less uncertainty.”
Money is an emotionally fraught issue, and not just for seniors. Those who wish to help them do wise not to rush the process. Lyndell Kelly, a money manager for seniors in Palo Alto, Calif., summed up her approach: “Go slowly, step by step, and reassure.”
