If your parents are getting older, and you’re starting to handle some of their medical or personal bills, there are some smart ways to help financially — without putting yourself in an economic hole.
Here are three financial tips to lighten the load when you’re providing monetary assistance to your Mom or Dad or allowing them to live with you.
Tip #1: Track Down Federal, State and Local Aid
It’s admirable to want to pitch in and help out a parent who might not be in the best shape – either physically or financially – but you don’t need to be a Super Hero or go it alone.
Unfortunately, that’s what millions of adult children are doing every day, and they’re not getting the help and resources for which they or their parents qualify.
For instance, one study from AgingCare found that while a whopping 34 million adults in the U.S. provide medical care for elderly family members. Yet, 63% of caregivers don’t have a plan to pay for their aging parents’ medical bills.
As a result, most caregivers pay small fortunes — out of their own pockets — for numerous expenses, such as prescription medicine or nursing help.
A smarter strategy: take advantage of existing federal and state aid.
At the Eldercare Locator service (www.eldercare.gov or 800-677-1116), you can find local resources available for elderly citizens and their caregivers.
And among the financial assistance programs highlighted on the website of The National Association of Area Agencies on Aging (www.n4a.org), you can track down a variety of resources ranging from discounts on prescription drug programs to information on Social Security benefits.
Tip #2: Bone up on Senior Citizen Benefits
When your parents are age 65 and older, you should also make sure that all of you know about the host of senior citizen benefits to which they may be entitled. You can find many of these benefits by logging onto www.benefitscheckup.org, a service of The National Council on Aging.
This site lets you to find and apply for numerous government and private programs that pay for such costs as your parents’ healthcare bills, food and utility bills.
By tapping into a program that covers these expenses, you will free up cash you would have otherwise spent on those items. AARP.org is another great resource for those 50 and older.
Tip #3: Claim Legitimate Tax Breaks
Finally, be certain that you claim legitimate tax breaks, when possible.
If your parents live with you – and even in some cases when they don’t – part of the financial cost of being a caregiver could be offset by a number of tax benefits.
First up: you may get to claim your parent as a dependent on your federal income taxes, giving you an extra personal exemption on your income tax return.
For the 2012 tax year, the personal exemption amount was $3,800. For the 2013 tax year, the personal exemption amount rose to $3,900.
Remember: an exemption functions just like a tax deduction. It lowers your taxable income, so you wind up paying less income tax.
But just helping your parents out here and there won’t cut it when you’re trying to nab parent-related tax breaks from Uncle Sam.
In order for you to claim your parent as a dependent, he or she must get more than 50% of his or her support from you. Your parent must also meet certain other IRS requirements, such as having an income below a certain threshold.
Check out IRS Publication 501, Exemptions, Standard Deduction, and Filing Information for more information about claiming a parent, another aging relative, or anyone else as a dependent.
You may also qualify for potential tax deductions and credits. For example, you might be able to write off some of the medical expenses you paid for a dependent parent.
And finally, you may qualify for the dependent care credit if you had to hire a caregiver for an elderly parent.
The dependent care credit lets you cut your tax bill whenever you pay someone to care for your parent (or a child or another qualifying relative) because that parent or relative is physically or mentally unable to care for him or herself.
In 2012, the maximum dependent care credit you can get for one qualifying person is $3,000. As of this writing, the IRS has not yet released information about the cap for the dependent care credit for the 2013 tax year. So review IRS Publication 503, Child and Dependent Care Expenses, for the latest information.