With the first baby boomers reaching retirement age, many adult children are now or will soon be caring for elderly parents and family members. The U.S. Census Bureau tells us that the retired and retiring populations are growing and those born between 1945 and 1964 are now tasked with the care of the previous generation. What's more, 75% of informal or family caregivers are women.
From managing health care costs to determining a final resting place, as parents reach their twilight years responsibility for their well-being, health and financial stability can increase on their children. All too often, these concerns are exacerbated by the death of one parent, leaving the surviving spouse in a state of confusion or despair.
Tax season is an ideal time of year to help your parents assess their financials. With the right preparation, what might seem an overwhelming process of collecting paperwork and scouring for deductions can become relatively pain-free.Here, a getting-started guide to helping your elderly parents in tax prep
In Depth: How To Claim Your Elderly Parents As A Tax Deduction
"Do my parents even need to file?"
According to the Tax Policy Center, more than half of all seniors in the U.S. won't have to file income tax returns this year because their incomes are under the IRS filing requirements. To help your parent decide, the first step is taking a look at their gross income. If their "gross income" is below the IRS filing limits, they do not have to file a federal tax return. Gross income includes all the income received that is not exempt from tax, but does include Social Security benefits.
For a single person over the age of 65, the ceiling for gross income is $10,750. For a married couple, $20,900.
Greg Rosica, tax partner at Ernst & Young and one of the authors of the company's 2011 tax guide, says that the best place to start when preparing taxes for mom and dad is by looking at a copy of last year's tax filing. "Often children find themselves dealing with elderly parents who may not recall everything that went on in the year so it falls on the child to gather up the pieces," he says. Last year's filing will help to paint the picture of their taxable and untaxable income as well as what forms need to be located prior to filing.
Be on the lookout for: Social Security income paperwork and investment or retirement accounts. Most of these filings take the form of IRS 1099 and should arrive in the mail, although Rosica notes that some people elect to receive them electronically. If that is the case, locating passwords to email accounts can be critical, especially in the event of the parent who was previously responsible for tax prep passing away.Deductions and exemptions
"Understanding [elderly parents'] situation regarding deductions, credits, exemptions and how they apply can be incredibly confusing," says Rosica. Because they are often based on age, income, types of income and more, they often change each year. He advises clients to rely on a tax professional to know the ins and outs: "No discussion can replace going through the checklist for the eligibility."
Still, there are several key tax breaks for seniors to be aware of. The elderly or disabled credit is the most common. "At the end of the day this credit ends up being a maximum of about $1,125 and it's a direct function of a person's age or disability. The individual must be either over 65 or fully disabled." It's important to remember that it's a credit that each person is entitled to-so for two parents filing, each can receive the credit.