Elder care can be an expensive undertaking and you should plan for it financially in order to avoid unnecessary tax burdens.
Assess the annual income of the person you will be caring for, including pensions and Social Security benefits. Subtract this income from $40,000 to find out approximately how much of annual elder care costs will need to be met from other sources. Then add up the person's investments and savings. Divide this number by the annual elder care costs that must be met from other sources to get a rough estimate of how many years of care this money will provide.
You are allowed to give someone up to $11,000 a year without having to file a gift tax return. If you are married, you and your spouse together can give a $22,000 gift. Medical expenses you pay on someone's behalf do not count as a gift, however, and you can give the full amount we have discussed in addition to paying those medical expenses. You should check with an accountant or financial adviser for specific requirements.
Long-term care insurance is becoming increasingly popular as a way of easing the financial strain that long-term care can impose. Shopping around for long-term care insurance is important because all policies are different and you will need to find a policy that will fit your particular needs and budget.
If you provide more than 50% of the financial support for someone, including one for whom you are providing care, you may count that person as a dependent on your tax return as long as his or her income is under $3,000 a year. You can also claim as a deduction any of that person's medical expenses that you have paid.
If an elderly person has a home with no (or a low) mortgage, he or she may borrow against the home through a reverse mortgage. The lender pays the homeowner a monthly payment based on the value of the home. These payments reduce the equity of the home. The bank is then repaid, with interest, when the home is sold.