Any tax guys here?

Any tax guys here? I have a quick, wierd tax question. Let me start by saying yes I know there are plenty of tax professionals out there but thought maybe I could find an answer to this quick question before hunting one down this late in the game, my tax guy is already booked up. This is regarding the tax return for my aunt Linda -who has Alzheimer’s and I’m her trustee/POA. Her friend and retired attorney Kim has been doing her taxes for years and I’ve let that continue. Linda started needing home memory care in 2021 and it came to our attention for 2022 that that is 100% tax deductible- the home care hours really ramped up in 2022 out of necessity, and she is now in a care home . The amount she spent on the home care in 2022 was …staggering. Cashed out one of her annuities for almost that amount to help pay for that so her gross income was also much higher. I was wondering if there’s maybe an amount that we should stay below for the deduction to not be red-flagged and risk an audit, I sure as heck wouldnt want to deal with that . Anyone here have any experience with this?

 

Are you looking for a new taxman or just advice?

 

Just advice re that one question

 

I'm a CPA but not a tax guy so take this with a grain of salt.

If the account gets flagged because of the size of the home care deduction or change in income, it likely doesn't trigger a full audit. IRS might just ask for backup for that one deduction itself or for cashing in the annuity. I'd imagine a pretty good paper trail exists for both. Even a full audit usually isn't a huge deal and are often done through the mail these days. IRS is so under staffed right now chances of getting audited are very slim.

I'd claim the actual amount paid if it is 100% deductible. Claiming less is just going to result in taxes owing. Confirm strategy with tax preparer of course.

FWIW, most of CA got an automatic filing extension to Oct 16, 2023 for 2022 returns from the IRS due to FEMA emergency declarations and it should apply even if your Aunt is out of state since you are trustee/POA. https://www.irs.gov/newsroom/irs-pr...ooding-landslides-and-mudslides-in-california

 

Thanks! Yes, full paper trail exists. The deduction is about 100k . Aunt is local in OC , not out of state

 

https://www.irs.gov/publications/p502#en_US_2022_publink1000178856

Straight from the horse's mouth.

 

I'm a CPA and pretend mountain biker... I'm focused on the tax side of life.

IRS Pub 502 is a great resource to review. You should also review IRS Pub 926 for household employees. https://www.irs.gov/publications/p926

Health aides and private nurses are discussed in Pub 926. Most private nurses do all they can to get paid under the table. So watch for that. You want to do things correctly and protect your deduction in case of an audit.

I have many client's over the years who deducted large amounts later in life for home health care once they needed help with basic needs. Over $100k annually in some cases. I have yet to see an IRS audit for this area in my practice.

Be sure to keep receipts, invoices, medical bills, etc. to support the deductions. All of my IRS audits have been won with proper client documentation. Don't forget medical mileage as well even if a family member is driving. This would also include picking up prescriptions at a different time.

All but 7 counties in California now have until October 16, 2023 to file and pay their IRS and California taxes. That may help with your timing.

DM me if you have questions and need to chat offline.

 

Thanks! Not under the table, all through a care agency, I have all the invoices.