To determine what tax advantages exist, it is best to first determine if the individual in need of care can be claimed as a dependent.
For the tax year 2013 (filing year 2014), there are multiple tax credits and deductions available to seniors, the elderly and their families and caregivers. Most costs associated with medical care, assisted living, home care, prescription drugs, medical equipment and home care supplies are deductible through various state and federal tax credits or deductions.
The available tax credits and deductions depend largely on the filing status of the individual in need of care or on the filing status of those caring for the individual. To determine the available options it is best to first identify if the individual in need of care can or should be claimed as a dependent or if they should file their own taxes.
Claiming an Elderly Person as a Dependent
To claim an individual as a dependent, there are two important qualifications. First, the tax filer (usually a family member) must have provided at least half of the dependent’s financial support for the year and second, the dependent must be related or have lived with the tax filer for one full year.
An important exception exists to the requirement that the tax filer provide at least 50% of the financial support. If several family members together contribute 50% of the dependent’s support, then the family can choose a single member to claim the individual in need of care as a dependent. This is referred to as creating a “Multiple Support Declaration”.
Tax Credits and Deductions for Elderly Dependents
Oftentimes an expense may be applied towards one credit or another, or split and applied partially towards both credits. To determine which approach can yield the greatest tax advantage, it is recommended to use one of the many online tax calculators to project different scenarios.
Medical Expense Deductions
A dependent’s medical and dental expenses can be deducted if the total exceeds 7.5% of the tax filer’s adjusted gross income. Therefore, if a multiple support declaration is being used, to achieve the greatest tax benefit to the family unit on the whole, it makes sense for the family member with the lowest adjusted gross income to claim the individual in need of care as their dependent. Read more.
Elderly Dependent Care Tax Credit (Federal)
Also known as the Child and Dependent Care Credit; this is a tax credit for expenses a family incurs paying for the home care or adult day care of a dependent so that they are able to work. Read more.
Elderly Dependent Care Tax Credit (State)
In 2013, 28 states have their own version of the Federal Child and Dependent Care Credit and most simply allow tax filers to deduct a percentage of their federal tax credit from their state tax returns. For example, if your Federal credit is $500 and your state’s rate is 50%, you can deduct an additional $250 from your state return. Read more and find out which states offer this credit here.
Tax Credits and Deductions for Seniors Filing Their Own Taxes
Elderly and Disabled Tax Credit
Persons 65 and older (or younger if disabled) are eligible for this tax credit provided their income is below the required thresholds. For an individual the adjusted gross income limit is approximately $17,500 or $25,000 if they are married. The maximum amount for this credit in 2013 is $1,125. Read more.
Medical and Dental Expense Deductions
Medical and dental expenses can be deducted if the total exceeds 7.5% of the tax filer’s adjusted gross income. Since many elderly have lower incomes and high medical costs, it is very common that their expenses will exceed 7.5% . Read more about Medical Expense Deductions.