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Tax-Smart Caregiving: A Practical Guide to Reviewing Expenses Before Year-End
- Michelle Francis
- Dec 1
- 3 min read
Updated: 10 hours ago
For many of us, the end of the year doesn’t just mean holiday shopping, travel plans, and wrapping up work projects; it also means running a quiet audit of how much we’ve spent caring for others. Whether you’re supporting aging parents, helping adult children launch, or both, caregiving has a way of creeping into your budget in small, inconsistent, easy-to-overlook ways.
Caregiving costs add up quickly, especially for those of us in the sandwich generation juggling support for both parents and kids. On average, caregivers spend about $7,200 a year out of pocket - and for sandwich-generation families, that number can jump to roughly $10,000, sometimes taking up more than a quarter of the household income.
Here’s how to review the year, track expenses, budget, and - where possible - take advantage of tax benefits tied to caregiving.
Step 1: Start by Taking Inventory of the Year’s Caregiving Costs
Caregiving expenses often scatter across categories, credit cards, and months. Start by gathering information from:
Bank and credit card statements
Health-related invoices
Pharmacy receipts
Transportation logs (mileage for appointments, rideshare costs, gas)
Home-care or respite-care payments
Medical supplies and adaptive equipment
Grocery or meal-delivery services
Step 2: Sort Costs by Category
Understanding what you’re spending on helps you understand why. Break caregiving expenses into buckets such as:
Healthcare & medical: co-pays, prescriptions, equipment
Personal care: in-home support, hygiene supplies
Household help: cleaning, meal prep, laundry, deliveries
Transportation: fuel, parking, rideshares
Living adjustments: grab bars, ramps, safety devices
Support for adult children: rent help, tuition, emergencies
Seeing it organized can be eye-opening - especially when small expenses add up to a major budget category.
Step 3: Identify What’s Budgeted… and What Was a Surprise
Caregiving often includes both:
Predictable costs (prescriptions, recurring care, standing appointments)
Unpredictable costs (hospital visits, emergency travel, sudden equipment needs)
Use your year-end review to check:
Which surprise expenses are becoming patterns
Where your current budget isn’t realistic
What you need to add as a dedicated caregiving line-item next year
Whether it’s time to build (or replenish) a separate caregiving emergency fund
Step 4: Look for Tax Deductions or Credits That May Apply
Understanding the tax breaks available to caregivers can take a little bit of pressure off, especially as you’re wrapping up your year-end financial review. One helpful option is the Child and Dependent Care Credit, which can offset some of the costs of caring for loved ones who can’t care for themselves, including aging parents. Depending on your income, you may be able to claim up to 35% of qualifying expenses, with the percentage gradually decreasing for higher earners (bottoming out at 20%).
You may also be able to deduct certain unreimbursed medical expenses if you itemize and those costs exceed 7.5% of your adjusted gross income (AGI). This can include things like safety-related home modifications, personal care attendants, medical equipment, and ongoing treatment - expenses that often slip under the radar but add up quickly.
Here’s how you can make the most of these tax benefits:
Keep all invoices and receipts tied to caregiving and medical services.
Track your payments meticulously to verify they meet IRS requirements, which typically include care for a legally dependent relative.
Be sure your care recipient qualifies as your dependent, which may involve meeting IRS residency and income criteria on your tax return.
Step 5: Build Your Caregiving Plan for Next Year
Once you know what the year actually costs you, you can create a plan for the year ahead:
Add caregiving as a formal line in your budget
Review your insurance coverage and your parents’
Revisit beneficiary designations and estate documents
Automate savings for caregiving expenses
Consider whether long-term care planning needs to begin
Block time in your calendar to revisit caregiving costs quarterly
Caring for Others Requires Caring for Your Finances Too
Caregiving is an act of love, but it’s also an act of logistics and often a significant financial one. Including these costs in your year-end financial review helps you stay grounded, plan realistically, and avoid the feeling of “I’m constantly behind.”
This is the kind of review future-you will thank you for.