DiSabatino CPA Blog

DiSabatino CPA Blog

A blog by Michael DiSabatino CPA with topics on Tax Savings, Business, Management and more...

How to Maximize Deductions for Assisted Living

It's possible that someone in your family will need assisted living care at some point in their life. This care can be at an assisted living facility, a nursing home, or in their own home. Often, assisted living care is expensive and not fully reimbursable by typical health insurance policies. Thankfully, there is a medical expense itemized deduction when the out-of-pocket amount exceeds 10 percent of your adjusted gross income.

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Let the tax man help with child care costs

Let the tax man help with child care costs

Are you a working parent looking for ways to ease the burden of child care expenses? There are several tax-saving strategies available to you.

First, there's the dependent care tax credit, a direct reduction to your tax liability.

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Maximize the Child & Dependent Care Credit

The Child & Dependent Care Credit provides a reduction in taxes to offset the cost of daycare when you are employed. The maximum amount of the credit is $3,000 for one dependent or $6,000 for two or more qualifying persons.*

To take advantage of the credit here is what you need to know.

  1. Qualified dependent(s). Your dependent must be under the age of 13. A spouse or older dependent who is physically or mentally unable to care for themselves can also qualify.
  2. Earned Income. You must have earned income to support the credit.
  3. Qualified daycare expenses. You must actually incur the care expense for the qualified dependent.
  4. Financial support requirement. You must maintain the home and financial support for the qualified dependent (more than half the cost and more than half the year).

Here are some tips;

  • Partial expense coverage. The credit only covers a percentage of your qualified care expenses. The amount depends on your income with a high of 35% of qualified expense down to a low of 20% of the daycare expense.
  • Obtain proper ID. Most daycare organizations will provide you with an expense summary at the end of each tax year. This form will tell you how much you spent in care and will provide you with the proper tax id for their organization. If you have someone else caring for your dependent, make sure you receive their tax information. It will be needed when you file for the credit on your tax return.
  • Not equal. If you have two or more qualified dependents, the daycare expenses do not have to be equal for each of them. For example, you could use $5,000 for one dependent and $1,000 for the rest of them.
  • Education expenses. Pre-school, nursery and other educational programs can qualify if levels are lower than kindergarten. Full-day kindergarten fees DO NOT qualify.
  • Leverage summer. Summer day camps and similar activities can qualify for the credit. So too can hiring a nanny to care for the kids while you are at work and the kids are out of school.

Other details apply. Please ask for help if you wish to review your situation.

*Note: If your employer provides daycare reimbursement as a benefit on your W-2, the employer benefit is limited to $5,000 or $2,500 if married filing separate or single. You can still use excess daycare expenses to maximize your credit to the full $3,000/$6,000 amount.

Call us if you have questions about the tax consequences of employing family members.

DiSabatino CPA
Michael DiSabatino
651 Via Alondra Suite 715
Camarillo, CA 93012
Phone: 805-389-7300

This publication provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten or redistributed without permission, except as noted here.  All rights reserved.

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