By the way, if your mother is still competent to make financial decisions, you need to get her to execute a durable power of attorney to give you authority to handle her financial and tax issues, and also execute an IRS form 2848, which is a special POA form for taxes (of course the IRS has their own forms). .https://www.irs.gov/forms-pubs/about-form-2848
If she is no longer competent and you don't already have a POA, you need to go to court to be appointed her conservator. If not, you have no authority to file her taxes or issue tax forms.
The caregiver is a household employee and your mother issues a W-2 and files and pays household employee tax on her tax return.
https://www.irs.gov/publications/p926
Separately, your mother can deduct expenses for medical care as an itemized deduction on schedule A. The actual tax value of the deduction will depend on her other tax situations.
You can deduct costs for providing maintenance care and personal services to a chronically ill persons if you meet the tests below, summarized as:
1. The person is chronically ill or has an impairment that makes it dangerous to leave them alone.
2. Care is provided according to a written care plan that is reviewed and updated at least once a year (as the person's needs may change).
Normally, you could only deduct costs for nursing care and not costs for companionship or housekeeping services, and you must allocate the costs accordingly. Under the rules for chronically ill persons, you can include companionship (keeping them out of danger, see below). Housekeeping may be a bit of a gray area, but food prep is probably allowed; and if the person was in assisted living, the entire cost would be allowed, so I think you can probably include food prep under "providing of a chronically ill individual with needed assistance with the individual’s disabilities" because they can no longer prepare their own meals. However, this also depends on the person's individual needs, which may be different for different persons, and may change as time passes, which is why a specific written care plan is needed in addition to a general diagnosis.
Therefore, you need a written plan of care, and that is more than just noting in her medical record that she has a dementia diagnosis and requires an aide. The care plan should document the activities the aide will perform and how they relate to the person's "needed assistance with the individual’s disabilities". It can be a simple plan, and it can be written by a qualified social worker instead of a doctor (check with Alzheimers Association for example), but you should have it in writing in case of audit.
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Qualified Long-Term Care Services
Qualified long-term care services are necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, rehabilitative services, and maintenance and personal care services (defined later) that are:
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Required by a chronically ill individual, and
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Provided pursuant to a plan of care prescribed by a licensed health care practitioner.
Chronically ill individual.
An individual is chronically ill if, within the previous 12 months, a licensed health care practitioner has certified that the individual meets either of the following descriptions.
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The individual is unable to perform at least two activities of daily living without substantial assistance from another individual for at least 90 days, due to a loss of functional capacity. Activities of daily living are eating, toileting, transferring, bathing, dressing, and continence.
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The individual requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.
Maintenance and personal care services.
Maintenance or personal care services is care which has as its primary purpose the providing of a chronically ill individual with needed assistance with the individual’s disabilities (including protection from threats to health and safety due to severe cognitive impairment).
