Tax Breaks for Supporting a Parent

Income Tax

Taking care of an elderly parent may provide more than just personal satisfaction. You could also be entitled to substantial tax deductions even if your parent doesn’t live with you.

 Here are five tax opportunities you might have overlooked:
Claim a dependency exemption.

If you provide a parent with regular financial support, check and see if you can take a dependency exemption on your tax return. Each exemption is worth $3,650 in 2010 (unchanged from 2009) and can be claimed as long as you meet these requirements:

You must provide more than half of his or her financial support for the year.
Your parent’s “gross income” must be less than $3,650 in 2010. (The good news is that the non-taxable portion of Social Security payments don’t count.)
Share and share alike. Do you and your siblings chip in to help support a parent? Generally, there’s no tax break for furnishing a small amount of money, but there’s an exception in the tax law that allows families to share a dependency exemption.
Relatives can set up a “multiple support agreement” by filing an IRS form. In essence, your family is pooling the support payments and allowing one sibling to take the dependency exemption. The next year, the group designates another member to get the tax break.
This way, your family reaps the benefits of an exemption that no one can qualify for alone. Consult with your tax adviser for more information.
Take a medical deduction. Perhaps you pay a large amount for a parent’s health care or nursing home bills. You may be able to secure a tax write-off by adding the amount to your deductible medical expenses. (Keep in mind, however that the medical deduction is limited and you can only write off qualified payments that aren’t reimbursed by insurance.)
Claim a credit for home-based care.You can also get a tax break if you pay someone to care for a parent while you work. Let’s say you hire a nurse’s aide to watch your 85-year-old father because he’s unable to stay alone. You may qualify for a medical expense deduction for the cost of the aide, as described above, but you could also be eligible for a dependent care credit. The credit is usually worth more because it’s a dollar-for-dollar subtraction from the taxes you owe. A deduction only lowers the amount of income used to calculate your tax bill.
To qualify for a dependent care credit — just like the one available to parents with children — you must work full or part-time. The credit is also available if you’re a full-time student, disabled, or actively searching for a job. The exact amount of the tax break depends on your income.
Become a head of household. There is a separate, lower tax rate for single people who pay more than half of the costs of maintaining a parent’s home. You may be eligible for “head of household” tax filing status.
Source:  TrustCounsel’s May 3, 2011 eNewsletter by BizActions.
Address: 1414 Raleigh Rd Ste 203, Chapel Hill NC 27517
Phone: 919.636.0950 | Toll Free: 800.201.0413 | Fax: 919.493.6355 |