How to Reduce Taxes When Supporting Aging Parents

By Tom Nonmacher

Hello fellow thrifters! Today, we're going to delve into an area that many of us, as we age and our parents age, are navigating - supporting our aging parents. It's a reality that can come with many financial challenges. However, there are ways to alleviate some of this burden, particularly when it comes to taxes. Let's explore some strategies that can help reduce taxes when assisting our beloved seniors.

One of the most effective methods is claiming your aging parent as a dependent. If you provide more than half of their financial support and their gross income is less than $4,200 (as of 2020), you might be eligible to claim them as a dependent on your tax return. This can lead to a significant amount of savings on your taxes. Just remember, it's important to keep a detailed record of all expenses related to their care for reference.

Medical expenses are another area where significant tax deductions can be made. If you're paying for more than half of your parents' medical expenses, you may be able to deduct these costs. This includes everything from prescription medications, doctor visits, hospital stays, medical equipment, and even some home modifications to accommodate their needs. Again, keeping meticulous records of these expenses is crucial.

Long Term Care Insurance is another consideration. Premiums paid on a qualifying policy can be included as medical expenses and are deductible within certain limits. If your parents don't already have a policy, and their health permits, it could be a worthwhile investment. It's also worth noting that the benefits received from a Long-Term Care policy are generally tax-free, providing another layer of savings.

Setting up a Personal Care Agreement can also be beneficial. If you're providing care for your parent, you can enter into a formal agreement where they pay you for the care and services you provide. This income is taxable to you, but it allows your parent to deduct these expenses, which may create an overall tax saving. Just be sure to consult with a tax professional or attorney to ensure this is set up correctly.

Lastly, don't overlook the importance of estate planning. Although it's a sensitive topic, it's crucial for tax purposes. By properly allocating their assets, parents can help reduce the amount of estate taxes that may be due upon their passing. This process should certainly involve a professional, preferably one who specializes in elder law or estate planning.

Supporting aging parents can be a challenging effort, both emotionally and financially. But with careful planning and leveraging tax deductions, it can become more manageable. Remember, every bit of savings counts, and we at eThrift are here to help you navigate through your financial journey. Stay thrifty, friends!

Check out the latest articles from all our sites:




12B442
Please enter the code from the image above in the box below.