How to Maximize Your Loved One's Tax Deduction

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Money MattersCaregiving 101Medicare

As a caregiver you may help your loved one file their taxes. Alternatively, you may file them under your own taxes as a dependent. Either way, a big part of filing is determining whether it’s best to take the standard deduction, or itemize expenses individually to include a deduction for medical charges.    

    

There are two choices when filing taxes: 

 

1. Take the standard deduction

The standard deduction varies, but for a couple (both over 65), the deduction is $27,800 for the 2021 tax return. 

 

2. Itemize Deductions

Calculate individual deductions by adding medical expenses to other deductions such as property taxes, state and local taxes, home mortgage interest and charitable contributions.

 

How do I know which one is better?

 

The decision of whether to take the standard deduction or itemize expenses depends on the amount of expenses and income.

 

For example, suppose your parents had an adjusted gross income of $75,000 for 2021. Their medical expenses for the year, when your father had major heart surgery and was in the hospital for three weeks, and your mother needed a wheelchair and someone to help her bathe at home, were $27,000.  

 

The deduction for medical expenses is any amount above 7.5% of adjusted gross income. 

 

Calculations show 7.5% of  $75,000 is $5,625, meaning your parents total spending over the 7.5% threshold was $21,375. ($27,000 - $5,625 = $21,375). This means their deduction for medical expenses alone for 2021 could be $21,375.        

 

Your parents already have a large potential medical deduction of $21,375. (Not yet reaching the $27,800 standard deduction) However, if additional deductions, such as mortgage interest payments, state and local taxes, and charity contributions, put them over the standard deduction for a couple over 65 ($27,800), it makes sense for you to itemize deductions for them when you prepare their taxes. If they do not have additional deductions to reach the $27,800, it makes sense for them to take the standard deduction

  

Here are some of the major items you can deduct as medical expenses:

 

  • Monthly premiums you pay for health insurance
    • For those with traditional Medicare, this would include Part B, Medicare supplemental coverage (also called Medi-gap), and Part D plans that cover prescription drugs 
    • For those with Medicare Advantage, which has a network of approved doctors and hospitals, there may be a separate monthly premium
    • NOTE: If the person you’re caring for is your dependent, you can deduct their Medicare premiums. 
      • (For a loved one to be recognized as your dependent for tax purposes, you have to provide more than 50% of their support for the year, and they have to have an adjusted gross income of less than $4,300.)        

  

  • Any additional charges under hospital and physician charges not covered by Medicare 
    • These could be co-payments for surgery, care in rehab centers, or expensive medications

  

  • Premiums for private long-term care insurance 
    • These policies cover care for people who may need help with dressing, feeding, and bathing

   

  • Dental charges not covered by Medicare
    • Includes routine exams, fillings, crowns, surgery, implants, and false teeth

 

  • Equipment and devices 
    • Wheelchairs, walkers, and canes 
    • Special mattresses to help people who have severe arthritis
    • Oxygen equipment
    • Blood sugar test kits
    • Eyeglasses
    • Hearing aids

 

  • Travel to get medical care allows a charge of 17 cents a mile 
    • For example: Suppose you drive your mother to and from the doctor’s office or a rehabilitation clinic. Tally the miles you go for the trips.  ou can claim a transportation cost of 17 cents per mile. You do not have to keep a record of how much you spent for gasoline. To make it simple, the IRS allows the mileage charge.

 

  • The cost of home improvements and modifications to provide necessary care 
    • For example: Suppose your loved one has arthritis and a heart condition and cannot climb stairs or get into a bathtub. If their doctor advises them to install a bathroom with a shower stall on the first floor of their two-story rented house, the full cost is eligible for a medical deduction. 

 

Lastly, something new was added to the list this year (2021): The cost of face masks and other protective equipment to protect against COVID is fully deductible.        

 

Additional Tools and Resources to Help Calculate Your Deduction 

See the full list of deductible items listed by the IRS here

The IRS also has a tool for personally estimating the possible deduction, accessible here:

 

  



         



Bob Rosenblatt

Bob Rosenblatt has been a reporter for 40 years, specializing in aging issues, such as Medicare, Social Security, Pensions, IRAs, and finding Assisted Living.