Tax strategies during the caregiving years

Tax time used to be straightforward. You worked, you earned, you filed a return. Now you're helping your parent, paying for their care, maybe dealing with their finances alongside your own. Suddenly the tax code feels like it's written in a foreign language. You're not sure what you can deduct. You're worried you're missing savings that are sitting right there in front of you. You don't want to do something wrong and end up owing money or getting audited.

The truth is, there are some real tax benefits available to people in your situation. Not massive windfalls, but genuine money that you can keep in your pocket if you know where to look. The problem is nobody hands you a guide. You have to stumble through it yourself, and most people never find half of what they're eligible for.

I'm going to walk you through the main ones. Not everything that exists, because the tax code is enormous and changes every year. But the ones that actually matter when you're supporting an aging parent. What they are, whether your situation qualifies, and what you need to do about them.

Understanding the Basics

Before you can use tax strategies, you need to understand what tax advantages actually exist and why they exist. The tax code isn't random. There's logic behind it, though the logic sometimes gets buried under decades of amendments and special cases.

The government wants to encourage caregiving. They do this primarily through the dependent exemption and the caregiver credit. When you provide more than half the financial support for your parent, and they meet certain income and citizenship requirements, you can claim them as a dependent on your tax return. This used to be a bigger deal, but tax code changes in recent years have reduced its value significantly. Even so, if you qualify, it still reduces your taxable income, which is real money.

The other major piece is the caregiver tax credit, which is separate from the dependent exemption. If you paid for qualifying care expenses, you might be able to claim a credit of up to $3,000 per year in expenses. A credit is worth more than a deduction because it reduces your taxes dollar for dollar, not just your taxable income. The catch is that the qualifying expenses have to be for care that allows you to work. If you're paying for your parent's care just to keep them safe, it doesn't qualify. If you're paying for care so you can keep your job, it does. This is where people often get confused.

There's also the issue of medical expenses. When your parent has significant medical costs, some of those become tax deductible. Not all of them, and the rules are stricter than you might think. You can only deduct medical expenses that exceed a certain percentage of your adjusted gross income, so unless your parent has extraordinary medical bills or you have a low income, this might not help you. But if you're dealing with expensive in-home care, physical therapy, medical equipment, or ongoing treatment, it's worth calculating whether you hit that threshold.

The piece that most people don't understand is that your parent might also have tax benefits. If you're paying for your parent's medical care, those expenses could reduce their tax burden as well, or if they can't use them, some of those might be transferable to you. This is where you really do need to talk to a tax professional, because the rules are complex and they vary based on your specific income situation.

Your Parent's Specific Situation

Here's where the generic rules meet your actual life. The first question is whether you actually provide more than half your parent's support. This isn't what you feel responsible for. It's what the IRS defines as "support." Housing, food, medical care, insurance, utilities. It includes everything, but also requires actual calculation. If your parent has a pension or Social Security, that counts toward their own support. If they have savings they're drawing from, that counts toward their support. If you're paying for part of their rent and they're paying part from their pension, you need to know the exact percentage.

Some people are shocked to discover they don't actually provide more than half their parent's support, once you count everything. That doesn't mean you're not helping significantly. It just means that for tax purposes, you don't qualify for the dependent exemption. The opposite happens too. People who think they're barely helping discover they're actually over the fifty percent threshold.

Document this. Get your parent's income statements. Get a list of all their regular expenses. Do the actual math. If you're not sure, a tax professional can help you with this calculation for relatively little money, and it's worth doing once because it establishes the facts.

If you do provide more than half support, you need to be able to prove it. Keep receipts. Keep records of what you paid and what your parent paid. If you're keeping track of who paid for medical expenses, groceries, housing, insurance, utilities, be specific. These aren't things the IRS will ask about unless there's a problem, but if there ever is an audit, you'll want documentation.

Next question: Does your parent have significant medical expenses? If yes, keep track of all of them. Medical insurance premiums, copayments, deductibles, prescriptions, medical equipment, home modifications for accessibility. Even things that seem unrelated might be deductible. Transportation to medical appointments, certain alternative treatments if prescribed by a doctor. Your accountant will know the full list, but the point is that you need documentation.

If you paid for care that allowed you to work, that's different again. This could be an in-home caregiver, an adult day program, a facility where your parent stays during your work hours. It qualifies if you paid for it to allow you to be employed. Keep the receipts and keep careful notes about why you needed the care.

The documentation question matters. The IRS doesn't take things on faith. If you claim a deduction or credit, you need to be able to back it up. Receipts, invoices, bank statements, credit card statements that show what you paid for. If you're claiming your parent as a dependent, you need to provide their Social Security number and document the support you provided.

Taking Next Steps

Once you understand your situation, you have decisions to make. Should you claim your parent as a dependent? If you're unsure whether you qualify, a tax professional can give you a clear answer. The cost of an hour of professional time might save you the headache of trying to figure it out yourself or the risk of claiming it incorrectly.

Should you try to claim the caregiver credit? This requires tracking specific expenses related to care that allowed you to work. Some people do this naturally because they're organized. Others find it overwhelming. If you're in the second group, decide now whether you'll make the effort. If you decide yes, start tracking immediately. If you decide no, don't feel bad about it. The money you'll get from the credit might not be worth the complexity for your situation.

Medical expenses are trickier because the threshold is high. If your parent's medical expenses are ordinary, you probably won't hit the deductible threshold. If they're exceptional, you probably will. Run the numbers. Add up all qualifying expenses from the year and see if they exceed the threshold percentage of your adjusted gross income. If they don't come close, skip it. If they're getting close, save the receipts and talk to a tax professional.

Who should you talk to? There are different levels of expertise. A basic tax preparer can help you with straightforward questions. They might miss things that a CPA or tax attorney would catch. If your situation is complex, with a lot of medical expenses, or if you're not sure about the dependent exemption, paying for a professional who specializes in elder care taxation might be worth it. These people charge more, but they know the specific issues that come up in caregiving situations.

Start the conversation with the professional by saying that you're providing significant financial support for an aging parent and you want to understand what tax benefits you might be eligible for. Tell them roughly what you're paying for. Let them dig into your situation. If they find nothing, you know nothing applies and you can stop worrying. If they find something, you now know what to track going forward.

The timeline matters. Some of these deductions and credits need to be claimed on the year you paid the expenses. You can't wait five years and then claim them. So if you're thinking about whether tax benefits apply, do this calculation sooner rather than later. If you're partway through the year, you still have time to start tracking expenses properly going forward. If you're at the end of the year, you might be making decisions about year-end expenses. Understanding the tax implications might actually influence what you decide to do, so the knowledge is useful right now.

The caregiver credit has another deadline consideration. You have to claim it in the year the expenses happen. You can't carry it forward or back. So if you paid for care in 2025, you claim it on your 2025 return. If you missed 2024, that money is gone.

Your parent's situation also changes over time. What qualifies as a dependent one year might not the next, if their income increases or your circumstances shift. What's a significant medical expense one year might not be the next. This isn't something you figure out once and then ignore. You check it again next year, and the year after that.

The other piece is communication with your parent, if they're capable of it. They might have tax deductions you don't know about. They might have old records of expenses. They might have already planned to handle something in a certain way for tax purposes. If you're helping with their finances, you should be having conversations about the tax implications.

Real money is sitting in these tax benefits, waiting for people who know to look for them. It's not dramatic savings for most people. It's not going to solve your caregiving costs. But it's money you're legally entitled to, and every bit helps. The effort it takes to understand whether these apply to you is worth the small amount of money it might put back in your pocket each year.

How To Help Your Elders is an educational resource. We do not provide medical, legal, or financial advice. The information in this article is general in nature and may not apply to your specific situation. If you are concerned about a loved one's cognitive health or safety, consult with their healthcare provider or contact your local Area Agency on Aging for guidance and support.