Tax Tips: Using qualifying dependents to save on taxes

March 5, 2017|

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Are you taking care of an elderly parent or relative? Whether it’s driving to doctor appointments, paying for nursing home care or medical expenses, or handling their personal finances, dealing with an elderly parent or relative can be emotionally and financially draining, especially when you are taking care of your own family, too.

Fortunately, there is some good news! You might be able to claim your elderly relative as a dependent come tax time, as long as you meet certain criteria. Here’s what you should know about claiming an elderly parent or relative as a dependent.

The IRS defines a dependent as a qualifying child or relative. A qualifying relative can be your:

  • Child, stepchild, foster child or descendant of any one of them, for example your grandchild
  • Brother, sister, half-brother, half-sister, stepbrother or stepsister
  • Mother, father, grandparent or other direct ancestor, but not a foster parent
  • Stepmother or stepfather
  • Niece, nephew, step-niece or step-nephew
  • Aunt or uncle
  • Son-in-law, daughter-in-law, mother-in-law or father-in-law, brother-in-law or sister-in-law.

There are four tests that must be met in order for a person to be your qualifying relative:

  1. Not a qualifying child test: Your parent (or relative) cannot be claimed as a qualifying child on anyone else’s tax return
  2. Member of household or relationship test: a person must either live with you all year as a member of your household, or be related to you in one of the ways mentioned above.
  3. Gross income test: Income cannot exceed the personal exemption amount, which in 2016 (and 2017) is $4,050. In addition, your parent or relative, if married, cannot file a joint tax return with his or her spouse unless that joint return is filed only to claim a refund of withheld income tax or estimated tax paid.
  4. Support test: You must provide more than half of a parent’s total support for the year, such as costs for food, housing, medical care, transportation and other necessities.

What if you share caregiving responsibilities?

If you share caregiving responsibilities with a sibling or other relative, only one of you — the one proving more than 50 percent of the support — can claim the dependent. Be sure to discuss who is going to claim the dependent in advance to avoid running into trouble with the IRS if both of you claim the dependent on your respective tax returns.

Sometimes, however, neither caregiver pays more than 50 percent. In that case, you’ll need to fill out IRS Form 2120, Multiple Support Declaration, as long as you and your sibling both provide at least 10 percent of the support towards taking care of your parent.

The tax rules for claiming an elderly parent or relative are complex. If you have any questions, contact your tax preparer and he or she can help you sort through the maze of dependency exemptions.

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