Academic journal article Journal of Accountancy

Supporting a Parent

Academic journal article Journal of Accountancy

Supporting a Parent

Article excerpt

Tax savings opportunities.

Nowadays, individuals frequently support one (or both) of their parents. Because of the increased financial burden this may entail, taxpayers should carefully examine and consider the tax breaks currently available to them.

DEPENDENCY EXEMPTIONS

A taxpayer can claim a dependency exemption for a parent if five requirements are met.

Gross income test. The dependent's gross income cannot exceed the personal exemption. For 1999, that amount is $2,750. While the amount is relatively low, a parent whose primary source of income is Social Security may still be able to meet this test.

Support test. The taxpayer claiming the exemption must provide over half of the dependent's support for the year. "Support" includes food, shelter, clothing, medical and dental care, education and the like. Payment of medical expenses (including medical insurance premiums) is support; medical insurance benefits are not.

If more than one child shares in a parent's support, multiple support agreements (MSAs) may be used to realize tax savings. An MSA allows the children to claim a dependency exemption for the parent if none of them individually provides more than 50% of support. As long as the group provides more than 50% of the support, they can decide who should claim the exemption; that person need only have contributed more than 10% of the support. Only one exemption for a parent may be claimed in a given year; however, each year, the taxpayer claiming the exemption may change.

Relationship test. The dependent must either be related to the taxpayer or reside with the taxpayer as a member of his or her household for the entire tax year.

Citizen or resident test. The parent must be either a U.S. citizen or resident or a resident of Canada or Mexico.

Joint return test. The parent cannot file a joint return unless it is filed solely to claim a refund. …

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