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Does anyone know what documentation would be best to have if a client is intending to deduct what she pays (through payroll) for household employees who spend most of their time caring for her spouse who has cognitive decline? They have not previously deducted this expense as their hours had been spent on household chores and errands in previous years, but that has changed. Has anyone gone through an audit of this portion of itemized medical expenses?
I’ve had clients deduct these expenses on their tax returns with no back up paperwork to justify it. Their accountants accepted the figures the client provided and used the medical expense deduction on the tax return. The chances of being audited these days are slim with the IRS being very under-funded but that is not a great strategy for not having back up. I’m curious how others will respond to this thread.
While I agree with Natalie that audits are very few and far between, I would still have the paperwork handy. If they are getting paid through a payroll service, they will have the back-up material you will need. If you are doing it for them, the canceled checks and the aides’ monthly reports will do.
I would follow what LTC companies request, which would be monthly reports on the types of services provided related to ADL and other medical needs, along with hours worked on which days. I think that would be sufficient to back up payroll reports.
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