Tip #2: File a “Multiple Support Declaration”
Another possible deduction comes into play when there are multiple siblings giving support for a parent. In this case, as long as a sibling provides at least 10 percent of the support and the combined support of all siblings makes up half of their parent’s annual expenses, the parent could be claimed as a dependent. However, only one sibling can take the exemption for the parent. An agreement needs to be reached each year as to which sibling will take the exemption on their return. The sibling taking the exemption will need to file Form 2120, Multiple Support Declaration, and have all of the other siblings sign the form claiming that they will not take the exemption on their own return.
Tip #3: Determine if you are eligible for a dependent-care credit.
As a family caregiver, you may be eligible for the Child and Dependent Care Credit if you paid someone else to care for your elderly parent so you were allowed the opportunity to work or look for work. If eligible, you would be allowed a credit of up to 35 percent of the expenses paid for dependent care with the maximum amount of expenses being $3,000. This means the tax credit can be worth up to $1,050. To be eligible, you (and your spouse if filing jointly) must have earned income during the year, and the care recipient must be unable to physically or mentally care for him or herself. Care recipients must also be claimed as a dependent (if the recipient’s income is under $3,700) on the caregiver’s tax return, and you must identify all persons or organizations that provide care, according to the qualifications listed on IRS Form 2441.
Tip #4: Deduct your parent’s medical costs.
If you were not able to claim your elderly parent as a dependent because his/her gross income was more than $3,700, there may still be a chance to receive tax savings this tax year. Medical expenses may be deducted on your tax return, along with your own expenses, for dependents and for individuals that would have been a dependent, except for the income guidelines. The IRS allows caregivers to deduct costs incurred from a parent’s health care, such as hospitalization, prescription drugs, dental care and even long-term care services.
A complete list of deductible medical expenses is available in IRS Publication 502: Medical and Dental Expenses. The deduction is limited to medical expenses that are in excess of 7.5 percent of the caregiver’s adjusted gross income (AGI). So in the case where a caregiver makes $50,000 in 2011, the caregiver would not be able to receive any deductions until medical bills accumulating to $3,750 have been paid.