Tax relief when you’re financially supporting your kids and your parents.

Tax relief when you’re financially supporting your kids and your parents.

If you are a parent, chances are you know how expensive it is to have kids. A 2017 report by the Department of Agriculture estimates it costs $233,610 for a middle-income family to raise a child born in 2015.
Taking care of your aging parent at the same time can be even more expensive – and stressful. And yet, this is a situation that one-in-seven adults (15%) find themselves in according to Pew Research Center.
The good news is that if you are part of the Sandwich Generation – adults in their 40s and 50s who are juggling the financial burden of caring for their own children and an aging parent – tax relief is available to you. A few tax-filing tips might save you thousands of dollars on your 2017 taxes depending on your situation.

Who can be claimed as dependents?

The IRS acknowledges two types of dependents: a qualifying child and a qualifying relative. Each type of dependent is subject to specific IRS rules. Three basic rules help you determine if relatives and children qualify as dependents. If relatives meet these minimum requirements, additional “dependency tests” will let you know if you can actually claim these dependents on your tax returns.

  • They must be a U.S. citizen, a U.S. national, a U.S. resident, or a resident of Canada or Mexico.
  • Nobody else can claim them as a dependent
  • They are not filing a joint return

How can I claim an exemption for my parents?

Depending on your situation, you may be able to claim your parents on your tax return as qualifying relatives. This is a viable way to offset expenses because exemptions reduce your taxable income.
The first dependency test is whether you provided more than half of your parent’s support for 2017 provided their individual gross income for 2017 was less than $4,050. For example, let’s say your dad received $2,400 in social security benefits and $600 in interest in 2017. He spent $2,200 on lodging and spent $500 on entertainment. If you spent more than $3,000 for his support and he didn’t receive support from anywhere else, you’ve provided more than half of his support.
In addition, in order to claim your dad as a dependent:

  • You cannot be claimed as a dependent on someone else’s 2017 tax return.
  • Your parents cannot file jointly on their 2017 tax return.

You are allowed one exemption for each person you can claim as a dependent according to the IRS. Each exemption is worth $4,050 for 2017. The type of 1040 filer will dictate how you claim the exemption on your return.

Is there an age limit on claiming my child as a dependent?

You can claim your child if he or she is younger than you (a seemingly strange requirement – but true) and younger than 19 years old. However, even if your nest is empty, you may still be eligible for a tax break. Children ages 19-24 who are full-time students – meaning 5 calendar months by year end – can also be claimed. Keep in mind, the child must be yours legally and live with you for more than half of the year (being away for school, vacation, or military service counts as time at home). There’s no age limit if your child is “permanently and totally disabled.”
There are exceptions: you cannot claim your child if the youth’s total earned income exceeds $4,050 in 2017 or if the child pays more than half of his/her own support during the year.

Can I write-off any daycare, medical or health-related costs?

You can recover expenses for dependent care for you parent or child in a few different ways.
The Child and Dependent Care Credit lets you claim a percentage of the amount of what you paid to a care provider to care for a qualifying individual while you are working or actively looking for work. The credit cannot exceed $3,000 for a qualifying individual and $6,000 for two or more qualifying individuals.
You can choose from a wide range of providers as long as the care provider is not your spouse, the individual’s parent, under 19, or someone you are claiming as a dependent. But be careful not to include any expenses that aren’t primarily designated for the “well-being” of the individual as defined by the IRS.
Medical and dental expenses that are paid on behalf of dependents can be claimed up to 10% of your adjusted gross income with one caveat: the individual must have been your dependent at the time the medical service was rendered or when you paid the expense. A complete list of medical expenses is available under IRS Publication 502. Insurance premiums cannot be included but you can include amounts you pay for transportation to another city if the trip is primarily for medical services.

Does the IRS provide assistance?

Tax rules can be confusing. If you find that you need some assistance, the IRS provides an interactive tax assistant to help you muddle through the process.


Sources:

https://www.irs.gov/publications/p501#en_US_publink1000220868
https://turbotax.intuit.com/tax-tips/family/rules-for-claiming-a-dependent-on-your-tax-return/L8LODbx94
https://www.betterment.com/resources/retirement/planning-ahead/supporting-both-your-parents-and-children-these-tax-benefits-may-help/
https://www.forbes.com/sites/nextavenue/2013/01/29/how-to-claim-tax-breaks-for-supporting-your-parents/#10de9ac21d6a
http://www.clutewealthmanagement.com/design/money-and-you/financial-tips-for-the-sandwich-generation/


Miramontes Capital is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Miramontes Capital and its representatives are properly licensed or exempt from licensure. This blog is solely for informational purposes. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Miramontes Capital unless a client service agreement is in place.



STAY INFORMED
Subscribe Today
Enter your e-mail to have the latest Miramontes Capital news and events delivered to your inbox.
Stay Updated
We value your privacy and will not sell your e-mail to third parties.