Health Savings

Tax Breaks for Family Caregivers: Are You Eligible?
Tax Breaks for Family Caregivers: Are You Eligible? 850 500 smolinlupinco

Caring for an elderly relative is a privilege that offers many rewards: a deeper bond with your loved one, the knowledge that you are making an impact, and the peace of mind knowing they are in good hands. There are also potential tax benefits that can help lighten the load of caregiving. 

1. Medical expenses. When you provide over 50% of your loved one’s support, including medical expenses, they qualify as your “medical dependent” on your tax return. This allows you to include their qualified medical expenses along with your own when you itemize, which can potentially lower your income. The test for determining whether an individual qualifies as your “medical dependent” is less stringent than that used to determine “dependents,” which is covered in more detail below. 

In order to claim medical expense deductions, the total costs must exceed 7.5% of your adjusted gross income (AGI). 

Deductible medical expenses include costs for qualified long-term care services required by a chronically ill individual. Eligible long-term care insurance premiums can also be deducted; however, there is an annual cap on the amount. The cap is based on age, and in 2024 goes from $470 for an individual aged 40 or less to $5,880 for an individual over 70.

2. Filing status. You may qualify for “head-of-household” status by virtue of the individual you’re caring for if you are not married and:

  • The person you’re caring for lives in your household,
  • You cover more than half the household costs,
  • The person qualifies as your “dependent,” and
  • The person is a relative.

If you are caring for your parent, they do not need to live with you. As long as you provide more than half of their household costs and they qualify as your dependent, you can claim head of household status which has a higher standard deduction and lower tax rates than a single filer.

While dependency exemptions are currently on hold for 2018 through 2025, the rules for determining who qualifies as a dependent still apply when determining eligibility for other tax benefits, like head-of-household filing status.

The following must be true for the tax year you are filing in order for for an individual to qualify as your “dependent”:

  • You provide more than 50% of their support costs,
  • They must either live with you or be related,
  • They must not have gross income in excess of an inflation-adjusted exemption amount,
  • They can’t file a joint return for the year, and
  • They are a U.S. citizen or a resident of the U.S., Canada or Mexico.

3. Dependent care credit. In cases where your loved one qualifies as your dependent, lives with you and is physically or mentally unable to take care of themselves, you may qualify for the dependent care credit. This credit is designed to account for costs incurred for their care necessary while you and your spouse go to work.

4. Nonchild dependent credit. For 2018 through 2025, the Tax Cuts and Jobs Act (TCJA) created a credit of up to $500 dependents who don’t qualify for the Child Tax Credit. This could apply to a dependent parent; however, they must pass the aforementioned gross income test to be classified as your dependent. You must also pay over half of your parent’s support.

If your adjusted gross income (AGI) is above $200,000 ($400,000 for a married couple filing jointly), this credit is reduced by $50 for every $1,000 that your AGI exceeds the threshold.

Contact your Smolin Advisor to explore the tax implications of financially supporting and caring for an elderly relative.

21 Estate Planning Terms You Need to Know

21 Estate Planning Terms You Need to Know
21 Estate Planning Terms You Need to Know 850 500 smolinlupinco

Whether you’re making your first estate plan or need to update an existing one, it helps to speak the language. While most people are familiar with common terms like “trust” or “will,” the meanings of other estate planning terms may feel less clear. 

Keep this glossary of key terms handy to help you navigate the estate process with more confidence

  1. Administrator 

An individual or fiduciary appointed by a court to manage an estate if no executor or personal representative has been appointed or the appointee is unable or unwilling to serve.

  1. Ascertainable standard

This legal standard, typically relating to an individual’s health, education, maintenance, and support, is used to determine what distributions are permitted from a trust.

  1. Attorney-in-fact

The individual named under a power of attorney as the agent to handle the financial and/or health affairs of another person.

  1. Codicil 

A legally binding document that makes minor modifications to an existing will without requiring a complete rewrite of the document.

  1. Community property

A form of ownership in certain states in which property acquired during a marriage is presumed to be jointly owned regardless of who paid for it.

  1. Credit shelter trust

A type of trust established to bypass the surviving spouse’s estate to take full advantage of each spouse’s federal estate tax exemption. It’s also known as a bypass trust or A-B trust.

  1. Fiduciary

An individual or entity, such as an executor or trustee, who is designated to manage assets or funds for beneficiaries and is legally required to exercise an established standard of care.

  1. Grantor trust

A trust in which the grantor retains certain control so that it’s disregarded for income tax purposes and the trust’s assets are included in the grantor’s taxable estate.

  1. Inter vivos 

This is the legal phrase used to describe various actions (such as transfers to a trust) made by an individual during his or her lifetime.

  1. Intestacy

When a person dies without a legally valid will, a situation called “intestate,” the deceased’s estate is distributed in accordance with the applicable state’s intestacy laws.

  1. Joint tenancy

An ownership right in which two or more individuals (such as a married couple) own assets, often with rights of survivorship.

  1. No-contest clause

A provision in a will or trust that ensures that an individual who pursues a legal challenge to assets will forfeit his or her inheritance or interest.

  1. Pour-over will

A type of will that is used upon death to pass ownership of assets that weren’t transferred to a revocable trust.

  1. Power of appointment

The power granted to an individual under a trust that authorizes him or her to distribute assets on the termination of his or her interest in the trust or on certain other circumstances.

  1. Power of attorney (POA)

A legal document authorizing someone to act as attorney-in-fact for another person, relating to financial and/or health matters. A “durable” POA continues if the person is incapacitated.

  1. Probate

The legal process of settling an estate in which the validity of the will is proven, the deceased’s assets are identified and distributed, and debts and taxes are paid.

  1. Qualified disclaimer

The formal refusal by a beneficiary to accept an inheritance or gift or to allow the inheritance or gift to pass to the successor beneficiary.

  1. Qualified terminable interest property (QTIP)

Property in a trust or life estate that qualifies for the marital deduction because the surviving spouse is the sole beneficiary during his or her lifetime. The assets of the QTIP trust are therefore included in the estate of the surviving spouse, that is, the spouse who is the beneficiary of the trust, not the estate of the spouse who created the trust.

  1. Spendthrift clause

A clause in a will or trust restricting the ability of a beneficiary (such as a child under a specified age) to transfer or distribute assets.

  1. Tenancy by the entirety

An ownership right between two spouses in which property automatically passes to the surviving spouse on the death of the first spouse.

  1. Tenancy in common

An ownership right in which each person possesses rights and ownership of an undivided interest in the property.

Questions? Smolin can help. 

This brief roundup isn’t an extensive list of estate planning terms. If you have questions about these terms or others that aren’t listed here, reach out to us! We’re happy to provide additional context for any estate planning concepts you need more clarity on.

could you benefit health savings account

Could You Benefit from a Health Savings Account?
Could You Benefit from a Health Savings Account? 850 500 smolinlupinco

The cost of healthcare is rising. As a result, many people are on the hunt for a more cost-effective way to pay for their medical bills. 

If you’re eligible, a Health Savings Account (HSA) may offer a way to set aside funds for a future medical “rainy day” while also enjoying tax benefits, like: 

  • Withdrawals from the HSA to cover qualified medical expenses aren’t taxed
  • Earnings on the funds in the HSA aren’t taxed
  • Contributions made by your employer aren’t taxed to you
  • Contributions made by you are deductible within certain limits 

Who is eligible for an HSA? 

HSAs may be established by, or on behalf of, any eligible individual.

If you’re covered by a “high deductible health plan,” you may be eligible for an HSA. In 2023, a health plan with an annual deductible of at least $1,500 for self-only coverage or at least $3,000 for family coverage may be considered a high-deductible plan.

In 2024, these numbers will increase to $1,600 for self-only coverage and $3,200 for family coverage.

Deductible contributions are limited to $3,850 for self-only coverage in 2023 and $7,750 for family coverage. (Again, these numbers are set to increase in 2024 to $4,150 for self-only coverage and $8,300 for family coverage.)

Other than for premiums, annual out-of-pocket expenses required to be paid can’t exceed $7,500 for self-only coverage or $15,000 for family coverage in 2023. In 2024, these numbers will climb to $8,050 and $16,100, respectively. 

If an individual (or their covered spouse) is an eligible HSA contributor and turns 55 before the end of the year, they may make additional “catch-up” contributions for 2023 and 2024 up to $1,000 per year.  

Limits on deductions

Deductible contributions aren’t governed by the annual deductible of the high deductible health plan. You can deduct contributions to an HSA for the year up to the total of your monthly limitation for the months you were eligible. 

The monthly limitation on deductible contributions for someone with self-only coverage is 1/12 of $3,850 (or just over $320) in 2023. For an individual with family coverage, the monthly limitation on deductible contributions is 1/12 of $7,750 (or just under $646). 

At tax time, anyone eligible on the first day of the last month of the tax year will be treated as eligible for the entire year. This is relevant to computing the annual HSA contribution.

That said, if the individual is enrolled in Medicare, they’ll no longer be eligible per the HSA rules and can no longer make HSA contributions. 

Taxpayers may withdraw funds from an IRA and transfer them tax-free to an HSA—but only once. The amount allowed varies, depending on the maximum deductible HSA contribution for the type of coverage that is in effect at the time of transfer. 

The amount moved between the accounts will be excluded from gross income and thus won’t be subject to the early withdrawal penalty of 10%. 

HSA Distributions

Distributions from your HSA account that you use to pay for qualified medical expenses of those covered aren’t taxed. Typically, the qualified medical expenses in question would qualify for the medical expense itemized deduction.

However, funds withdrawn from your HSA for other reasons are taxed. Unless the person covered by the HSA is over 65, disabled, or dies, they will also be subject to an extra 20% tax. 

Questions? Smolin can help.

HSAs offer a very flexible option for providing health care coverage. However, as you can see, the rules can be quite complicated. 

If you have questions about tax rules regarding your HSA or the most favorable way to manage the funds within it, please reach out. The friendly accountants at Smolin are always happy to walk you through your options and help you determine the most tax favorable way to manage your money. 

Moving mom or dad to nursing home? Tax implications.

Moving mom and dad into a nursing home? Consider the tax implications of this new situation
Moving mom and dad into a nursing home? Consider the tax implications of this new situation 850 500 smolinlupinco

According to reports, nearly 1.5 million Americans are living in nursing homes. This is a big number, even if it represents just half of a percent of our population, so it’s difficult to imagine—until it becomes a reality for your family.  

If you have a parent moving into a nursing home or long-term healthcare facility, there are so many logistics to consider, plus the emotional aspects, and you’re probably not thinking about the tax implications of the situation. 

It’s important to do so, however, so here are five tax-related points for you to ponder as you navigate the transition to a nursing home for your parents.

Five tax implications of nursing homes

1. Long-term medical care costs

Expenses incurred for qualified long-term care, including nursing home care, are counted as deductible medical expenses to the extent that they, along with any other medical costs, exceed 7.5% of adjusted gross income (AGI).

Treatments that are eligible as qualified long-term care services are:

  • Diagnostic
  • Preventative
  • Therapeutic
  • Curing
  • Mitigating
  • Rehabilitative
  • Maintenance or personal care for chronically ill patients

To qualify as chronically ill, a physician or other licensed healthcare practitioner must certify a patient as unable to perform at least two daily living activities for 90 days due to a loss of functional capacity or severe cognitive impairment.

. These activities include:

  • Eating
  • Toileting 
  • Transferring
  • Bathing
  • Dressing
  • Continence

2. Nursing home payments

Payments made to a nursing home are deductible as medical expenses if the person staying at the facility is there primarily for medical care rather than custodial care. If a person isn’t staying in the nursing home primarily for medical care, only the portion of the fee that’s related to actual medical care is eligible for a deduction.

However, if the person is chronically ill, all qualified long-term care services, including maintenance or personal care services, are deductible.

If your parent qualifies as a dependent, you may include any medical costs you incur for your parent along with your own when determining the amount of your medical deduction.

3. Long-term care insurance

The premiums you pay for a qualified long-term care insurance contract can be deducted as medical expenses if they, together with other medical expenses, exceed the percentage-of-AGI threshold. However, they are subject to limitations.

The qualified long-term care insurance contract only covers qualified long-term care services and doesn’t pay costs covered by Medicare, is guaranteed renewable, and doesn’t have a cash surrender value.

You may include qualified long-term care premiums as medical expenses up to specific amounts:

  • For individuals over 60 but not over 70 years old, the 2023 limit on deductible long-term care insurance premiums is $4,770
  • For those over 70, the 2023 limit is $5,960.

4. The sale of your parents’ property

If your parent sells their primary residence, up to $250,000 of the gain from the sale may be tax-free. To qualify for the $250,000 exclusion ($500,000 if married), the seller must have used and owned the home for at least two years out of five years before the sale.

There is an exception to the two-out-of-five-year use test, which is if the seller becomes mentally or physically unable to care for themselves during the five-year period.

5. Head-of-household filing status 

Provided you aren’t married and meet certain dependency tests for your parents, you might be qualified for head-of-household filing status, which comes with a higher standard deduction and lower tax rates than single filing status.

You may be eligible to file as head of household even if the parent you’re claiming as an exemption doesn’t live with you.

Have questions? Smolin can help

These are just a few of the tax issues you might need to deal with if your parents move into a nursing home. If you’re looking for other ways to improve your tax situation and make things easier during this transition, contact the team at Smolin, and we’ll help you navigate the ins and outs of long-term healthcare tax breaks.

The IRS has Just Announced 2024 Amounts for Health Savings Accounts
The IRS has Just Announced 2024 Amounts for Health Savings Accounts 850 500 smolinlupinco

Recently. the IRS released updated guidance providing the 2024 inflation-adjusted amounts for Health Savings Accounts (HSAs).

HSA basics

An HSA is a trust established or organized exclusively for the purpose of covering the “qualified medical expenses” of an “account beneficiary.” 

An HSA can only be established for the advantage of an “eligible individual” who is covered under a “high-deductible health plan.” Additionally, the participant is not allowed to be enrolled in Medicare or have other health coverage. Exceptions include:

  • Vision
  • Dental
  • Long-term care
  • Accident
  • Specific disease

Within specified dollar limits, an above-the-line tax deduction is allowed for an individual’s contributions to an HSA. This annual contribution limit, along with the yearly deductible and out-of-pocket expenses under the tax code, is adjusted each year for inflation.

Inflation adjustments for the upcoming year

In Revenue Procedure 2023-23, the IRS released the 2024 inflation-adjusted figures for HSA contributions, which are as follows:

Annual contribution limit

For the 2024 calendar year, the annual contribution limit for an individual with self-only coverage under a high-deductible health plan (HDHP) will be $4,150. For an individual with family coverage, the amount will be $8,300. This is up from $3,850 and $7,750, respectively, in 2023.

There is an additional $1,000 “catch-up” contribution amount for those aged 55 and older in 2024 (and 2023).

High-deductible health plan defined 

For the calendar year 2024, an HDHP will be defined as a health plan with an annual deductible that isn’t less than $1,600 for self-only coverage or $3,200 for family coverage (up from $1,500 and $3,000, respectively, in 2023). 

Additionally, yearly out-of-pocket expenses (deductibles, co-payments, and other amounts, but not premiums) won’t be able to go above $8,050 for self-only coverage or $16,100 for family coverage (up from $7,500 and $15,000, respectively, in 2023).

Advantages of HSAs

HSAs offer numerous benefits. Contributions to these accounts are made on a pre-tax basis. Funds can accumulate tax-free year after year and can be withdrawn without tax implications to pay for a variety of medical expenses such as:

  • Doctor visits
  • Chiropractic care
  • Premiums for long-term care insurance

Additionally, an HSA is “portable.” It stays with an account holder if they switch employers or leave the workforce. 

Have questions? Smolin can help

If you’re unsure of how these new adjustments could impact your business or you have more questions about HSAs, contact the professional team at Smolin and they’ll walk you through the implications of these changes.

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