Now that school is out if you are a working parent you may have to pay for the care of your child during the time you are working. These expenses may qualify for the child and dependent care credit which can reduce your federal income taxes. This credit is available not only during the summer but throughout the year. The pertinent facts concerning this credit are:

• You and if applicable your spouse must have earned income. Earned income includes wages and self-employment. An exception would be a parent who is a full-time student or who is mentally or physically incapable of self-care.
• You must pay for the child or dependent care so you are able to work or look for work.
• The care must be for one or more qualifying persons such as a child under the age of 13 who you claim as a dependent or a spouse or dependent who is mentally or physically incapable of self-care and lived with you more than half the year.
• The care may be provided at a daycare facility outside your home, at a day camp or at your home.
• The credit may be up to 35 percent of your qualified expenses depending on your income.
• You may use up to $3,000 of the unreimbursed qualified expenses you paid for one qualifying person or up to $6,000 for two or more qualifying persons.
• Expenses which do not qualify include: overnight camps, summer school tutoring, care provided by your spouse or an individual you can claim as a dependent. Special rules apply if you receive dependent care benefits from your employer.
• When claiming this credit, you must have the full legal name, address and Social Security number or employer identification number of the care provider as well as receipts or records of the payments.

This credit helps to offset the cost involved in caring for your child while you work but you must maintain accurate records. A file or folder is useful to keep the record in one location until needed for your income tax return. This organization might take a few minutes  on a weekly basis but should certainly save you time and avoid frustration at tax time!

Submitted by Kathryn Shrader, Postema Accounting Solutions

On a personal note I have a paid long term care policy thanks to a jokingly stated remark my son made approximately twelve years ago. He was commenting on my “extremely advanced” age and what will happen when I am no longer able to maintain my home. Without batting an eye he stated he had found a nursing home in Iowa which he thought would be perfect for me when the time came; we reside in Ohio. His retort had me immediately investigating long-term care insurance as I want to be the one who decides which nursing home I inhabit if necessary when the time comes. Additionally, I do not want to be a burden to my children or take the risk of losing the summer home I inherited and intend to pass onto my heirs. The peace of mind I have with this type of insurance, in my opinion, is well worth what it cost even if I never need the type of care provided by nursing homes, assisted living facilities or in-home care.

I was fortunate my son’s remark was made when I was forty-nine and therefore able to obtain long-term care insurance prior to reaching the age of fifty. Consequently, my cost was lower than it would have been if I had waited and become even more advanced in age.

Concerning the potential of requiring some type of long term care, according to Meiners, M. (2012) “For anyone 65 and older, the odds are not in your favor. Statistics show 70% of those who reach 65 will need long-term care. With long-term care costing as much as $250 a day, it doesn’t take long to completely deplete a lifetime of savings – even if you’re “lucky” enough to only need it for a relatively short period of time”(pg. 1).

Many individuals are under the misconception original Medicare will cover nursing home costs and unfortunately this is not the case as Medicare does not pay for most nursing home care. This type of care is considered to be custodial care and thus would require another type of Medicare plan and only then if the chosen nursing home will accept that particular plan.

In most cases the wealthy have enough savings to pay for their long-term care and Medicaid is available for the poor. It is the individual who fits in between these two groups who needs long-term care insurance the most. I fit into this category as I do not have enough savings to pay for a couple of years of nursing home care yet have too much to qualify for Medicaid. Therefore, in my situation, long-term care insurance was the answer to protect my assets in the event (in the far future) of me needing the type of care provided by a nursing home, assisted living, or in-home care. I now have peace of mind concerning this potential cost and I do not have to worry that my summer home or other assets are in jeopardy of being sold to cover these costs. Consequently in my situation, purchasing long-term care insurance was not only a good idea it was an excellent idea!

Submitted by Kathryn Shrader, Postema Accounting Solutions

Reference

Meiners, M., (2012). Yes, Don’t Just Hope for the Best. The Wall Street Journal. Retrieved May 24, 2014 from http://online.wsj.com/article.