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News and Announcements: September 2014

4289178103_b0679573e9As life expectancies continue to increase, it becomes increasingly likely that you may need to help an aging parent financially.  If you find yourself in this situation, review the tax laws to determine whether you qualify for some tax relief.  The key is to determine whether you can deduct your parent as a dependent, which entitles you to an additional personal exemption on your tax return, reducing your taxable income by $3,950 in 2014.  To do so, your parent’s gross income can’t exceed the exemption amount, and you must provide over half your parent’s support.  For purposes of the gross income test, Social Security benefits typically aren’t considered.

What happens if you share your parent’s support with your siblings or other relatives?  If the combines total equals more than half your parent’s support and each person contributes at least 10% toward care, you can file a multiple support declaration.  Even though more than one person contributed to the support, the parent can only be claimed as a dependent by one person.  The multiple support declaration form informs the Internal Revenue Service of who is declaring the dependent for the tax year.  You can change the declaration on a year-to-year basis, so each person providing support receives some tax relief.

If you claim your parent as a dependent, any medical expenses paid for your parent can be claimed as a medical deduction on your tax return.  Your total medical expenses, including your parent’s expenses, must still exceed 7.5% of your adjusted gross income before you can take the deduction.  If you aren’t able to claim your parent as a dependent due solely to the grow income test, you can still include your parent’s medical expenses on your tax return.  When calculating these expenses, be sure to include premiums for supplemental Medicare coverage and long term care insurance.  If your parent lives with you and you must obtain outside care to go to work, you may be able to claim the dependent care credit.  Also look into whether your employer offers a flexible spending account for elder care.  This may allow you to set aside pretax dollars to pay elder-care expenses for a dependent parent.

Photo Credit: Jason L. Parks via Compfight cc

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