15 Jul Tax advantages if you care for elderly parent
Q. I help my mother financially. What deductions can I take, and can she be considered a dependent for taxes?
A. Helping your aging parents can be emotionally and financially draining, especially as you may be nearing retirement yourself.
But luckily, there are a few steps you can take to lessen the financial burden.
First off, it is important to account for this additional expense in your budgeting and overall financial plan as it can have a significant impact, said Matthew Masterson, a certified financial planner with RegentAtlantic in Morristown.
He said studies have found that daughters tend to be the first to quit their jobs and help take on the physical duties of assisting their aging parents while sons will generally help financially. However, over the long-term, the daughters experience the greatest financial impact due to lost wages and lost retirement savings, he said.
In order for your mother to be considered a dependent for tax purposes, there are two tests that must be met.
The first, Masterson said, is that your parent must not have earned more than the exemption amount for that specific tax year. For 2016, the figure is $4,050.
Generally, Social Security income is not included in this calculation but Social Security may be taxable depending the other income sources your parent has, Masterson said.
“If your parent meets the income requirement, you also need to have provided more than half of their support during the tax year,” he said. “Support can include the fair market value of the space they occupy in your residence, cost of food, utilities, medical bills, etc.”
If you total your mother’s expenses for the year and you are providing more than 50 percent, you will meet this requirement, he said.
Masterson said in many cases, support is provided by more than one family member.
“This does not mean you are out of luck,” he said. “If you and a sibling are splitting support of the parent and it exceeds 50 percent of their total support, one of you may still be eligible to claim your mother as a dependent.”
Masterson said if your mother qualifies as a dependent and you are single or unmarried, you may want to explore filing as head of household because it can provide important tax advantages over filing as a single person.
If you are not able to claim your mother as dependent, he said, you may still be eligible for tax breaks related to paying her medical costs. Your mother’s medical costs can be combined with your medical expenses and can be deducted as long as they exceed 10 percent of your adjusted gross income, or 7.5 percent if you are age 65 and older.
“It is essential to understand the long-term impact of the decisions you are making today and to confirm that the level of support you are providing your mother does not disrupt your financial future,” Masterson said. “And as always, consult with your tax advisor to better understand your individual situation.”
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This post was first published in July 2016.NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.