As a family caregiver, filing for taxes is complicated. What can you deduct? Do you need a 1099 form? Do you need to file at all? What about the VA caregiver stipend? Family as caregivers may need to learn what's taxable income and what expenses are deductible. Or how much of taxes history matters when filing. Knowing the rules will help you file accurate taxes and receive tax refunds.
The IRS regards most income sources as taxable, but a few exceptions are nontaxable.
Taxable income is any gross income earned that determines the amount of tax you owe, including any wages, tips, salaries, and bonuses from employers. Investment and unearned income are also included.
The following are regarded as nontaxable income by the IRS:
Sometimes the following items may be nontaxable:
Note: Not all inheritances are received tax-free. Certain types of inherited assets may require the beneficiary to pay income taxes. For instance, if a beneficiary inherits a Traditional Roth, they may owe taxes on the distribution. This gets tricky so we recommend that a person receiving inherited assets work with a tax professional to determine the basis of the inherited assets and any potential tax obligations. The IRS also has an interactive tool that taxpayers can use to determine if their inheritance is potentially taxable.
Unearned income is any income that does not come through work; it is also known as "passive income." On the other hand, earned income is any compensation for performing a service like work. Unearned income may include interest from savings accounts, bond interest, alimony, or stock dividends.
Different types of caregiving income have other tax implications. Always research specific rules for each kind of income, such as wages, self-employment income, and payments from public assistance programs. Certain expenses related to family care can be deductible. For instance, medical and long-term care insurance premiums may be deductible depending on the amount paid.
Payment for services needs to be reported to the IRS. This can include anything from investment income to debt cancellation to income from a trust. Unearned income consists of any unemployment compensation and taxable social security benefits. Document any unearned income received for services and report it when you file for taxes with the IRS.
Family caregivers often receive wages or salaries in return for caregiving services. Tips and bonuses, as well as any commission, are considered earned income. Earnings of $600 or more must be reported by a business paying someone by 1099.
Remember to account for caregiving expenses when you file your taxes. These apply primarily to out-of-pocket medical costs like medical supplies, hospitalization, and long-term care insurance. Document all of your expenses to reduce your taxable income. Keep track of receipts and other proof of payments. Include this paperwork when filing for taxes.
You can deduct caregiving expenses if costs exceed 7.5% of your income. What counts for tax deductions?
You also may be eligible for a Child Tax Credit or the Earned Income Tax Credit. These significantly reduce your tax burden. Review your taxes history, document everything, and keep receipts. Many families depend on their tax refund from these credits.
Tax deductions minimize your overall tax burden. For example, if your taxes owed are less than your tax credits, then you can receive a tax refund. Speak with a tax preparer about your tax deductions.
Income is any payment you get for providing a service, but there are other forms of income, like property and services in-kind. Knowing what to include can make the tax filing experience easy and hassle-free. To avoid complications, use the information above to calculate and declare your taxable income accurately.
