Seek Tax Aid for Medical Dependent

Suppose you help support an elderly parent or another qualifying relative. Under the Tax Cuts and Jobs Act (TCJA), you cannot claim a dependency exemption deduction for a dependent relative for 2018-2025. But keep reading.

Pay your dependent qualifying relative’s medical expenses. You can add those expenses to your own medical expenses for the year. For 2020, you can write off as an itemized deduction medical expense to the extent they exceed 7.5% of your adjusted gross income (AGI).

Expenses paid for a dependent qualifying relative could put you over the 7.5%-of-AGI deduction threshold. You must pay over half of your qualifying relative’s support for the year for the relative to be classified for the year as your dependent for itemized medical expense deduction purposes.

Caution: To deduct a dependent qualifying relative’s medical expenses, you must make direct payments to medical service providers. Simply reimbursing your relative for expenses that he or she already paid will not get you any deduction.

Example: For 2020, Mom’s total support is $30,000. You give her $1,500 a month for rent, utilities, and groceries, for a total of $18,000 which exceeds 50% of her $30,000 of support. Mom has $2,000 in medical bills that she intends to pay out of her retirement savings.

Better idea: Pay the $2,000 for Mom. Make payment directly to the medical service providers. If necessary, you can reduce the amount you pay for Mom’s rent, utilities, and groceries for the rest of the year by $2,000. Or not, if you can spare the extra $2,000. Either way, you can add the $2,000 of medical bills paid for Mom to your own medical expenses for the purpose of clearing the 7.5%-of-AGI itemized medical expense deduction threshold on your 2020 Form 1040.

Tip: Mom cannot deduct medical expenses that you pay, but she probably claims the standard deduction instead of itemizing. If so, she would not be able to claim any medical expense write off anyway.

Small Business Tax Strategies
August 2020