Personal care services provided by a live-in housekeeper qualified as "long-term care" expenses, according to the Tax Court. It was clear that the services were not for medical treatment, but solely to assist an elderly individual who suffered from dementia with the activities of daily living and to keep her safe.
The definition of deductible medical expenses includes "long-term care services." Unpacking this definition, the court determined that it was not necessary that the service providers be licensed health professionals as long as their services were provided under a plan of care that was established by a health professional. In addition, the services did not need to treat the illness. Assistance with basic living activities, such as feeding, bathing, or toileting, and actions designed to keep the individual safe and healthy qualified as medical expenses because she was "chronically ill" as a result of her dementia.
With in-home caregiving services running into the tens of thousands of dollars, the court's ruling that these expenses are deductible medical expenses could provide significant tax relief to many families coping with a loved one's dementia. For additional insights into why the caregiving services qualified as deductible medical expenses, read our story, Payments to Live-in Caregiver for Dementia Patient Were Medical Expenses.
Tax Tips
Ordinary and Necessary Business Expenses
To be a deductible business expenses, you must be prepared to demonstrate that it was both "ordinary" and "necessary." Learn how the IRS applies these terms by consulting our discussion, Ordinary and Necessary Business Expenses.
Medical and Dental Expenses
As our lead story indicates, knowing the rules for medical and dental expenses can reduce your taxes—perhaps significantly if you have a large amount of unreimbursed expenses in a year in which you don't have much income. Our discussion Medical and Dental Expenses provides you with the information you need about this deduction.
Payroll Taxes and Household Employees
If you have hired household help, you have the responsibility for ensuring the payroll taxes (e.g., social security and unemployment taxes) are properly calculated and paid. Learn the rules at Payroll Taxes and Household Employees.
Home Office Deduction
Working from home can provide flexibility and increase your productivity. Does your home workspace qualify as a home office? What tax benefits do you gain from having a home office? And, are there any downsides? Find out by reading the Home Office Deduction.
Tax News
Standard Mileage Rate Increased to 55.5 Cents per Mile Beginning July 1
The IRS increased the standard mileage rate from 51 cents per mile to 55.5 cents per mile, effective for miles driven after June 30 of this year. The rate for moving and medical driving expenses increased to 33.5 cents per mile, up from 19 cents per mile. (There is no change for charitable driving because that's set by law at 14 cents per mile.) The increase is obviously important for self-employed individuals. However, it also will affect most employees because employers generally use the standard mileage rate to calculate expense reimbursements. Standard Mileage Rate Increased to 55.5 Cents per Mile Beginning July 1.
Federal Unemployment Tax Rate Decreased on July 1
The federal unemployment tax rate dropped 0.2 percent on July 1, 2011 when a thirty-five year old "temporary" surtax expired. Because of a credit against FUTA for state unemployment taxes paid, the effective federal tax rate will be 0.6 percent for amounts paid starting July 1. Prior to July 1, the effective tax rate was 0.8 percent. Federal Unemployment Tax Rate Decreased on July 1.
Verify Tax Exempt Status before Making a Donation
While it is always wise to verify that an organization that claims to be tax-exempt actually is tax-exempt, it may be more important this year. More than 275,000 tax-exempt statuses had their exemption revoked for filing to file annual reports with the IRS. You can not claim a charitable deduction for any donation made to an organization after the date on which its exemption was revoked. Verify Tax Exempt Status before Making a Donation.
Required Booster Club Fundraising Payments May Be Deductible Contributions
The IRS has opened the "deductibility door" a crack with regards to fundraising amounts required by an amateur athletic clubs as a condition of participation. Although the application of the law breaks no new ground, it does clarify that if you do not receive full value for your contribution, a portion of it may be a tax-deductible contribution. However, the burden of establishing you didn't receive full value will be significant. Required Booster Club Fundraising Payments May Be Deductible Contributions.
