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Tax Benefits of Caregiving of Aging Relative
Taxes

Tax Benefits of Caregiving of Aging Relative

by Jeff Dailey
written by Jeff Dailey

Caring for an elderly relative can be rewarding, but incredibly difficult – as well as expensive. However, it may be possible to recoup some of the costs through income tax savings. Tax Benefits of Caregiving of Aging Relative
There are three general approaches to tax savings on elder care costs – declaring your elderly relative as a dependent to receive an exemption, taking medical deductions that can be itemized, and claiming a dependent care credit that can be subtracted directly from the taxes you owe.
First, you must determine if your elderly relative qualifies as a dependent. Full details are listed in IRS Publication 501, “Exemptions, Standard Deductions, and Filing Information,” but the primary criteria are that they must be a relative, you must be providing over half of their support, and their gross 2016 income must be less than $4,050. Tax Benefits of Caregiving of Aging Relative
The definition of relatives includes stepparents and in-laws. They do not have to live with you to meet the requirement as a dependent, but deductions change if they are in a long-term care facility or nursing home.
To calculate support levels and income requirements, you must consider income sources from your elderly relative such as dividends from investments, although Social Security income is excluded. If they live with you, you must consider percentages of your mortgage, utilities, transportation, and other household expenses when calculating your economic support. Tax Benefits of Caregiving of Aging Relative

If you determine that your relative can be claimed as a dependent, you can add them as an exemption on your tax forms. If not, you have two possible avenues:

  • Multiple Support – If more than one person is supporting the elderly relative and the group covers more than 50% of the costs, one of you can claim your elderly relative as a dependent if they contribute at least 10% of the support. The others must sign a form agreeing not to also claim the relative as a dependent for that year.
  • Itemized Medical Expenses – You can still deduct medical and dental expenses even when your elderly relative is not a dependent if all other criteria but the income requirement is met. There is a large list of potential medical expenses, including insurance premiums and elements of nursing and long-term care. Consult IRS Publication 502, “Medical and Dental Expenses,” to see what qualifies.You can only deduct these expenses if the costs exceed 10% of your Adjusted Gross Income (AGI), or 7.5% of your AGI if you or your spouse were 65 years or older in 2016.

The dependent care credit allows tax breaks on home care and elder care costs that are necessary for you and your spouse to be able to work. The credit covers up to 35% of expenses with a $3,000 expense limit (thus $1,050 maximum credit). It can cover expenses allowing you to look for work, but to claim the credit you will need to have earned income during the year (this also applies to your spouse).
These expenses cannot be devoted to both medical care deductions and the Dependent Care Credit; however, you can devote home care costs toward the Dependent Care credit and other medical expenses toward the medical care deductions. Without the home care costs included in medical deductions, you may not reach the 10% criteria. Do the math to see which approach works best for you.
Elder-care situations can be complex, and it is usually wise to consult with a tax professional. With some assistance, you can find the best path to help you simultaneously care for your elderly relative and save money – a win-win situation.
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Tax Benefits of Caregiving of Aging Relative

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Taxes

IRS Tips for End of Year Giving

by Jeff Dailey
written by Jeff Dailey

Individuals and businesses making contributions to charity should keep in mind several important tax law provisions that have taken effect in recent years. Some of these changes include the following: IRS Tips for End of Year Giving
Special Tax-Free Charitable Distributions for Certain IRA Owners
This provision, currently scheduled to expire at the end of 2013, offers older owners of individual retirement arrangements (IRAs) a different way to give to charity. An IRA owner, age 70½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charity. This option, first available in 2006, can be used for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.
To qualify, the funds must be transferred directly by the IRA trustee to the eligible charity. Distributed amounts may be excluded from the IRA owner’s income — resulting in lower taxable income for the IRA owner. However, if the IRA owner excludes the distribution from income, no deduction, such as a charitable contribution deduction on Schedule A, may be taken for the distributed amount.
Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.
Amounts transferred to a charity from an IRA are counted in determining whether the owner has met the IRA’s required minimum distribution. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats amounts distributed to charities as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions. See Publication 590, Individual Retirement Arrangements (IRAs), for more information on qualified charitable distributions.
Rules for Charitable Contributions of Clothing and Household Items
To be tax-deductible, clothing and household items donated to charity generally must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return.
Donors must get a written acknowledgement from the charity for all gifts worth $250 or more that includes, among other things, a description of the items contributed. Household items include furniture, furnishings, electronics, appliances and linens.
Guidelines for Monetary Donations
To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.
Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.
Reminders
To help taxpayers plan their holiday-season and year-end giving, the IRS offers the following additional reminders:

  • Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2013 count for 2013. This is true even if the credit card bill isn’t paid until 2014. Also, checks count for 2013 as long as they are mailed in 2013.
  • Check that the organization is eligible. Only donations to eligible organizations are tax-deductible. Exempt Organization Select Check, a searchable online database available on IRS.gov, lists most organizations that are eligible to receive deductible contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in the database.
  • For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction, including anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2013 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.
  • For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.
  • The deduction for a car, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.
  • If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.
  • And, as always it’s important to keep good records and receipts.

IRS.gov has Additional information on charitable giving.

IRS Tips for End of Year Giving

IRS Tips for End of Year Giving IRS Tips for End of Year Giving IRS Tips for End of Year Giving IRS Tips for End of Year Giving

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Beware Timeshare Tax Deduction Scams
Timeshare

Beware Timeshare Tax Deduction Scams

by Lisa Ann Schreier
written by Lisa Ann Schreier

The timeshare related fraudsters hell bent on separating you from your hard earned money do not take a break and seem to come up with ever more clever ways of taking advantage of you. Beware Timeshare Tax Deduction Scams
With tax season here, I’ve heard from an increasing number of consumers who have been promised a tax deduction of upwards of $25,000 if they “donate” their unwanted timeshare…for a hefty fee of up to $5,000 of course.
Legitimately donating a timeshare is almost impossible and trying it usually results in an IRS audit and fines.
Here are some tips and things to remember before doing business with anyone claiming to “help” you donate your timeshare:

  • If you donate anything else such as a car, clothing or money, there is no “fee” to do so. Why then, would there be a fee to donate your timeshare?
  • The timeshare owners I’ve heard from were contacted by a third party, NOT the purported charity. The Red Cross, Disabled Veterans of America, Goodwill, the United Way, etc. do not work with third parties.
  • All of the companies initiated contact. No legitimate company will ever initiate contact. This goes for resale, rental, listing, transferring, “getting out of” and donations.
  • A charity will not accept a donation if it comes with an ongoing liability and annual maintenance fees are an ongoing liability

Your timeshare does NOT have a $25,000 value, or a $15,000 value, or in most cases, even a $7,000 value. Timeshare is not an investment and the value of it does not increase over the years. Here is a definition of Fair Market Value that should clear things up: Fair market value is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts.
If the legitimate charity receives anything (doubtful in most cases), it will be a nominal amount of no more than a few hundred dollars which comes directly from the fee the company is charging you, NOT from the value of your timeshare, which as stated above, the charity does not want and cannot take
If you own a timeshare that you no longer need or want, here are some tips:

  • Call the resort and inquire if they will buy it back from you.
  • If you decide to sell or rent it, only work with those organizations that you contact first and those that do not require an upfront fee or give you any promises about selling or renting

Bottom line is do not do anything before checking with an unbiased source of information. That source of information is NOT the one trying to convince you of anything.
 

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