Financial consultant assisting senior couple with their taxes.

Helping Senior Parents Organize for Tax Preparation

Useful tips for supporting aging parents with tax record keeping and documents.

Each year at tax time, more and more adult children take on the often-difficult job of helping manage their aging parents’ personal finances. Tracking expenses, locating and updating documents, and getting it all organized for review and hand-off to a tax or accounting professional can be daunting.

As personal finance managers supporting seniors, we’ve found a number of areas that, if addressed early in the tax year, can make life easier for you and your parents. As you move through the year, here are some useful tips to help lower the frustration and avoid the consequences of untimely filing.

Paper or Digital?

As they prepare for filing, many seniors are wrestling with staying with paper or moving to a digital format. Whatever their preference, be sure they obtain all documents they need, and help them gather everything in one place.

  • As parents age, some become less organized. A tax professional’s tax organizer can be extremely helpful, serving as your guide to what documents are needed, especially if you are stepping in for the first time.
  • If parents signed up for electronic transmission in the past but no longer access their financial institutions online, have them contact their account representative to switch to mail delivery.
  • If there’s been a move, be sure to convey retiree address changes to all income payers. As pension management has shifted to centralized financial administrators, an address change may require a notarized identification affidavit.

If your parents are wary of a move to digital recordkeeping, there are some benefits they may consider worth the change.

  • Ease of obtaining all documents. Statements evidencing Social Security benefits, investment income, mortgage payments, property taxes, etc., can all be downloaded from secure websites and organized in digital folders.
  • Ease of transmitting to accountants. Accountants increasingly use Client Portals to facilitate and organize the digital transmission of tax materials from clients, as well as send completed tax returns to clients for review. The Portals are generally simple to navigate, time-efficient, and secure, as most use two-factor authentication. Even without a Client Portal, you can still transmit tax materials via a shared Dropbox folder or other file exchange platforms, as well as encrypted emails with password-protected attachments.
  • Ease of filing returns. As the filing of tax returns is generally done by electronic transmission from the accountant to taxing authorities, you’ll be asked to sign an “e-file authorization” which is much easier than sending the paper returns by regular or certified mail. If you are your parents’ agent under power of attorney, you can sign on their behalf.

While documenting tax deductions tends to stymy clients of all ages, keeping track of expenses throughout the year can be particularly overwhelming for seniors. Tracking expenses is something we do for our clients, and we can easily generate reports at tax time. However, if you’re helping your parents track their expenses, these are critical things to know:

  • Do a projection of your parents’ income and deductions early in the year to determine if it’s worth itemizing deductions. The standard deduction was raised substantially a few years ago. When deductions for State income and real estate taxes were capped on the Federal form, major deductions became limited to medical expenses and charitable contributions. Medical expenses can be deducted only if they exceed a percentage of adjusted gross income. You can find the current threshold for medical expense deductions on the IRS website.
  • Know how bills are paid and to whom. For seniors, medical expenses can increase dramatically in any given year, and being able to retrieve the information for a possible tax deduction is important. In the emotional fog of a serious medical issue, keeping track of the avalanche of expenses can be overwhelming, so make sure you catch these:
    • Payments for home health care (only if transactions are “on the books”)
    • Premiums for Medicare coverage (found on the Social Security 1099 form), supplemental insurance, and long-term care insurance
  • Be aware of all your parents’ charitable contributions. Identify scheduled gifts as well as the myriad of cause-related charities, religious institutions, schools, and foundations they may be donating to through social media platforms like Facebook. Keep in mind that political contributions are not tax-deductible.
Understand Accountant Fees

If you haven’t already done so, it’s a good idea to connect or meet with your parent’s accountant and understand both the scope of services and the fee structure.

  • Fees vary considerably. While we have not found a strong correlation between the complexity of tax returns and fees, in the accounting world time is money, so the size and sophistication of a tax preparation firm can certainly affect fees.
  • The nature of the relationship, its tenure, and its history with clients seem to have a big influence on the amount charged.
Understand Accountant Services

The big consideration here is the role your accountant plays. Define what advice or guidance you expect and need. Has the accountant strategized with your parents about managing their income and deductions, or simply prepared the tax return based on the income documents and information they have provided?

Your accountant could provide useful advice about several issues, including the following:

  • Would conversion from traditional IRAs to Roth IRAs be beneficial?
  • How much additional income would cause Social Security benefits to be taxed and increase Medicare premiums?
  • Which funds (taxable vs. retirement accounts) should be tapped first to cover long-term care expenses, balancing current tax considerations with the potential step-up cost basis of their estate?
Make Life Easier with Electronic Tax Payments

If together you decide you prefer to avoid writing and mailing checks for tax payments, you can make electronic payments from your parents’ bank account. Be aware of the following as you help your seniors manage their tax obligations:

  • Consider possible impacts on their estimated taxes. In today’s volatile world, finances and other circumstances can change in any given quarter, so track any changes accurately and report them to the accountant.
  • Be sure you have adequately funded the right bank account before you or they click “SUBMIT”! Plan ahead for any need to raise money.
  • Decide who will make the payments: the accountant, your parents, or you. If either you or your parents are making the payments, set up a calendaring system both of you understand and agree on.
  • Paying the IRS is very easy. Your parents need to identify themselves by name, social security number, date of birth, and prior year’s tax filing status. They’ll then need to provide their bank’s routing and account numbers for withdrawal in a specified amount. You can pay income and estimated taxes this way, and you can schedule them ahead of time.
  • Paying New York State taxes (and probably other states) is more complicated. For NYS, set up an online account. An income amount from a prior year’s tax filing needs to be provided, but the line number for the income is not specified. If you do set up the account, you and your parents get the benefit of seeing their tax payment history. You can pay all sorts of taxes here.
  • Real estate taxes can be paid digitally as well. Utilize the websites for local tax authorities and agencies. You will be asked to identify the property – common identifiers include block and lot numbers, bill numbers, etc. This information is available on old paper bills as well as through online searches.

As always, the best way to reduce complexity and stress around tax time is to have everything you need organized and complete. Being well prepared includes asking accounting and tax professionals the right questions, as well as having a solid understanding of the tools and processes for electronic document management and filing.

Helping aging parents with their finances is a significant commitment of time and energy, and is often emotional. Learn how we can help you to help them with our LifeKeeping™ services.

If you’d like support with tax record keeping or other personal finances management for your senior or for yourself,  Eddy & Schein Group will help you get it all done right, done well, and done on time. Just give us a call.

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