Tax Tips
Get Tax Breaks for Helping Mom, Dad, or Other Aging Relatives - September 2006
Richard Scrivanich - Partner
Do you feel the pressure that comes from financially supporting and caring for your children and your parents at the same time-like you're caught in the middle of two very demanding family roles, while managing a career and your own personal life? If so, you are one of the many thousands of Baby Boomers that comprise the Sandwich Generation.
These roles, when played altogether, can cause quite a strain on your finances. Before you forgo seeding your retirement account (which is one of the many ways you care for yourself financially), why not try to do all you can for yourself by reaping some of the tax advantages associated with caring for your aging relatives?
Dependency exemption and filing status
Your mother may live at home and your father may live in an assisted living facility, but if you provide their financial support, you are entitled to claim the appropriate number of exemptions and the head of household filing status.
A bit of information that often surprises people: Your parents do not have to live with you for you to claim them as your dependents, nor does where they live impact your filing status. The right to claim the "head of household" status can be beneficial to single filers.
The test is simply whether you supply more than half of the cost for your parent's support in a given year. But there is at least one exception to the rule: If you and your siblings, or other family members, all contribute roughly equally to your aging relatives' care, then you cannot claim the exemption of filing status. What you can do is bargain each year with all of your relative-caregivers for the exemption. So long as you provide more than 10% of the support, you can receive the entire dependency exemption providing that your relatives agree to that designation. Each of you can take turns claiming it each year, making it a fair deal for everyone.
The dependency exemption is worth $3,300 for 2006, and it is available for each qualified dependent. Thus, if you are caring for both your mother and your father, you may be entitled to a $6,600 exemption.
Deductible medical expenses
You might just be able to deduct the payments you make for medical expenses for your aging parent. To get this benefit, usually your relative must be your dependent. But if he or she does not pass the gross income or joint return test for dependency, you may still be able to claim these deductions.
Eligible medical expenses include those associated with nursing home or certain other long-term care costs, along with other types of services.
And did you know that the same dependency care savings plans available at your workplace are open to helping you fund care for your aging relatives? Many people believe that they can only designate funds from their workplace medical savings accounts to cover the costs of child care, but you can also direct these tax-favored funds to cover up to $5,000 (pre-tax) for your other dependents' care.
If you have any questions regarding tax breaks for helping aging relatives or any other tax matter, please feel free to call me at (562) 698-9891.
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Some of the articles included here were written in a prior
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relate only to the year for which the article was written and could be different
for the current year. Please discuss with us your personal situation before
acting on any of the information provided. If you have any questions,
please give us a call at (562) 698-9891.
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