Ask the ‘Stache: Tax-free doesn’t always mean off the hook

First, we’re so sorry — that’s a hard thing to be carrying, on top of the logistics of doing it from a distance.

There’s no line item for it. But there are two things worth checking: whether she qualifies as your dependent, and whether you can deduct what you’ve paid toward her care.

Does she qualify as a dependent?

Siblings are on the IRS’s short list of relatives who don’t have to live with you. Unlike a friend or a domestic partner, your sister doesn’t need to be under your roof for you to claim her.

But she still has to clear two tests:

Support: You have to provide more than half of her total financial support for the year.

Gross income: Her income has to fall under $5,300 for 2026 (not including Social Security or SSI).

Can you deduct any expenses?

But even if she fails the gross income test, you may still be able to deduct the medical expenses you paid on her behalf, as long as she meets every other dependency requirement.

The IRS carves out an exception specifically for medical costs in this situation — which is worth knowing, since medical costs are likely where most of your spending is going right now.

If a sibling or other family member is splitting the load with you, a multiple support agreement lets one of you claim her even though no single person covers more than half alone.

If she does qualify as your dependent, you’re looking at the $500 Credit for Other Dependents too — not a deduction, but not nothing.

👉 See the rules for claiming a relative as a dependent

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Depends on where the water is going. This is, remarkably, a real distinction the IRS cares about.

Are you self-employed?

If you’re 1099 or running your own sales business (Schedule C), supplies you use to do the job are deductible as ordinary and necessary business expenses.

Handing bottles to homeowners to break the ice before your pitch? Supply cost — no different from business cards, except people are actually happy to receive it.

Drinking it yourself to survive a July route? Personal sustenance. Same treatment as your lunch, which is to say: none. The IRS assumes you’d need water whether or not you had a sales route, and it’s not wrong.

Are you a W-2 employee?

None of this applies to you. The One Big Beautiful Bill Act made the TCJA-era suspension of unreimbursed employee expense deductions permanent starting in 2026. Only the self-employed get this perk now, which is either good news or bad news, depending on which side of that line you’re standing on with a case of water in your trunk.

Keep the receipts and be honest with yourself about which bucket the water’s in. The IRS has, somehow, thought about this exact scenario before.

👉 Check what counts as a deductible business supply

Every Thursday, we go to work.

The TaxStache Business Edition breaks down the tax and finance topics that actually matter to business owners, from quick intros to in-depth dives. Plus book, podcast, and video recs to keep you sharp, and a weekly download you can put to use right away.

If you own a business (or you’re building one), this one’s for you.

Almost certainly not, but “almost certainly” is doing some work in that sentence, so let’s check.

VA disability compensation

Doesn’t count as gross income. At all. It’s one of the few corners of the tax code that just leaves you alone.

Social Security

A little more conditional, because nothing involving the IRS gets to be simple twice in a row. Whether any of it is taxable depends on your “combined income” — your other income plus half your benefits. If Social Security and VA disability are your only income, that figure is usually low enough that none of your benefits are taxable either.

Where that leaves you

Otherwise, you’re free to skip it. Filing anyway is sometimes worth it if you want a paper trail or think you’re owed a refundable credit, but it’s optional — a rare sentence in this newsletter.

👉 Use the IRS tool to confirm whether you need to file

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