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The Financial Burden of Caregiving

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The Financial Burden of Caregiving

A Guide to Navigating the Costs

As our population ages, more and more adult children are finding themselves suddenly thrust into the role of caregiver. According to a survey by AARP there are approximately 38 million caregivers in the United States as of 2021, with roughly 60% employed in the workforce in some capacity. 

Here’s how to take charge and navigate the financial aspects of caregiving:

Know Your Options

Long-Term Care Insurance: Consider purchasing long-term care insurance for yourself or your parent (if they’re still relatively young and healthy) to offset future care costs.

Maximize Assisted Living Benefits: Research assisted living facilities and inquire about the portion of rent categorized as a medical expense – this can be deductible.

Claim Your Dependent: If your parent meets dependency requirements, claim them on your tax return and potentially qualify for a higher standard deduction and tax credits.

The average annual cost of caregiving can range from $7,000 to $10,000 or more, depending on the level of care required and the specific needs of your loved one. The first step is to acknowledge the financial obligations you will have to face. 

Medical vs. Custodial Expenses: Understanding the difference between medical expenses (deductible) and custodial care (not always deductible) is crucial for tax calculations. 

Here are some examples of each to give you an idea:

Medical Expenses

  • Medical treatments, diagnosis and prevention treatments for an illness or health condition.
  • Medical assistance devices such as wheelchairs, walkers, mobility aids, etc.
  • Prescriptions, over-the-counter drugs, incontinence supplies, etc.
  • Transportation costs to get to and from medical appointments.

Custodial Expenses

  • Housecleaning or home maintenance services.
  • Assistance with daily activities like cooking, bathing and dressing.

Track medical bills meticulously – doctor visits, prescriptions, or therapy – to maximize your tax deductions. To qualify you must provide more than half of your parent’s support within the year, however they do not need to live with you. If your parent qualifies as your dependent and their medical expenses (excluding the 7.5% AGI threshold) exceed yours, deduct the total on your tax return.

Maximizing Your Deduction

  • Keep Detailed Records: Maintain meticulous records of all medical expenses, including receipts, invoices, and insurance statements.
  • Consult with a Tax Professional: A tax professional can help you navigate the complexities of the tax code and identify additional deductions or credits you may qualify for.
  • Consider a Health Savings Account (HSA): HSAs can be used to pay for qualified medical expenses, including those for your dependent.
  • Explore Flexible Spending Accounts (FSAs): FSAs operate similarly to HSAs but with pre-tax dollars.

Securing Your Financial Future

While caring for a loved one is a noble pursuit, remember to keep up your own financial well-being. 

Here are a few tips to help you secure your financial future:

  • Prioritize Your Future Self: Set up automatic transfers to your retirement accounts. Every little bit count, and consistent contributions can grow significantly over time.
  • Flexible Work Arrangements: Explore flexible work options like part-time work, freelancing, or remote work to maintain a steady income stream.
  • Community Resources: Take advantage of community resources like support groups, caregiver workshops, and respite care services to reduce stress and maintain your mental and financial health.

Remember, you’re not alone in this journey. By taking proactive steps and seeking support, you can balance your caregiving responsibilities with your financial goals.