The right resource can be a free tax preparation service.
If your parents need help filing taxes or you are now responsible, here are some great tips from the United Way of Northern New Jersey.
Free Tax Preparation Services
The IRS has supplemental tax programs offered by non-profit organizations. These programs, Volunteer Income Tax Assessment (VITA) and Tax Counseling for the Elderly (TCE) are free, paid for through an IRS grant.
United Way is one organization that does tax preparation through VITA. AARP does tax preparation through TCE. VITA is designed for low to moderate income, but you can bring your tax returns to either group. Scheduling times can help you decide which to use. United Way tends to schedule appointments on evenings and Saturdays, while AARP tends to have day hours. Either way, plan on one and one-half hours for your appointment. If your loved one accompanies you, bring a photo ID and their Social Security card or Social Security statement. If you go alone, bring a copy of the loved one’s photo id, Social Security card or statement and Power of Attorney.
These tax preparation services do simple single or married returns. Returns that are out of scope have rental income, trusts, a bankruptcy in the tax year, or reflect active military status. If an elderly person passes away, these services can file the last individual tax return. If the deceased was married, they can file that return as well. However, they cannot do estate returns.
If you would like to find a free tax site near you, you can search on IRS.gov.
Volunteers do the returns; can you trust the work?
People tend to worry about these types of programs, but the truth is they are more highly regulated than ‘shingle shops’: “Hair salon and tax preparation”. Every volunteer in these non-profit programs is required by the IRS to go through training and take a certification test. The training and test are the same for both programs. They are required to take a yearly certification test also. There are experienced volunteers that check every single number on other preparers’ return. You can be assured there is a good system of checks and balances in place.
2018 Tax Reform and Jobs Act
Fewer people will itemize with this new law because of the increase in the standard deduction and the cap on the amount of state and local tax that can be deducted. But if there are high medical bills, tax deductions may still be available at the federal and state level.
On your federal return you can deduct medical expenses if they exceed 7.5% of adjusted gross income, which is a hard bar to reach. However, medical deductions will vary state to state. In New Jersey you can deduct medical expenses if they are at least 2.5% of adjusted gross income. A tax preparer will be able to guide you in your state.
Challenges for Adult Children
The biggest challenge may be having the conversation with your parents about tax preparation. Our loved ones can be reluctant to give up control, which makes getting access to everything you need difficult. Once the conversation has been opened, be sure to get account websites and passwords.
Finding all the documents you need to bring to the tax preparer can be a challenge as well. Look for old tax returns to get a handle on income, investment and revenue accounts. Be prepared to bring them to the appointment. You don’t need to bring your elder to the first meeting, but the individual person the tax return is created for needs to sign it. If you have Power of Attorney (POA) for finances, you can sign for your senior. Just be sure to bring this document with you.
If your loved one’s only source of income is Social Security, they don’t have to file a Federal tax return. However, many seniors still feel obligated and will file. Many seniors come to free tax programs to file for the New Jersey $50.00 credit for rent paid.
Medical Expense Deductions
The list of medical deductions is more comprehensive than I anticipated. They range from small expenses like bandages to capital expenses for equipment or improvements to your home needed for medical care. They can even include guide dogs or other animals aiding the blind, deaf and disabled.
The most overlooked medical expense is transportation. You can deduct parking fees, tolls, gas and oil when you use your car for medical reasons, in addition to transportation to and from medical appointments. In fact, transportation includes bus, taxi, train, plane fares or ambulance service. It is well worth your time to read through Publication 502 (2018) Medical and Dental Expenses from the IRS. What you can and can’t deduct is laid out in alphabetical order.
In New Jersey, there is a Veterans Exemption for honorably discharged veterans that gives them a $3000 exemption on their New Jersey income. You need to fill out a form from the New Jersey state website and submit it along with a copy of the DD214 form (discharge papers). It only needs to be submitted once. Check to see if your state has something similar.
What if I’m missing information?
If you decide to itemize medical expenses, you need receipts. Pharmacies like CVS will print out a year’s worth of prescriptions. Some doctors’ offices will do the same.
If you can’t find federal tax documents from any one source, you can go to IRS.gov and ask for wage and income transcripts. Any institution that reports revenue to the federal government (e.g. Social Security, pensions, investments, taxes) will be available. Unfortunately, in New Jersey the state cannot provide wage and income transcripts. Check with your state.
For additional tips See the AARP article: Tax Tips for Caregivers
With thanks to the United Way of Northern New Jersey.
The United Way improves lives by mobilizing the caring power of communities to advance the common good. To learn more about their work, of improving life for all, you can learn about ALICE (Asset Limited, Income Constrained, Employed) here.
Disclaimer: The material in this blog is for educational purposes only. It is not intended to replace, nor does it replace, consulting with a physician, lawyer, accountant, financial planner or other qualified professional.