(Corrects paragraph 8 to remove the text: "Unlike your
children," and to add the parenthetical phrase (Neither does
your child, for that matter.)
By Linda Stern
WASHINGTON Feb 23 What can you do when your
parents are struggling to pay medical bills and your kids can't
land jobs? Why, write checks, of course!
Being surrounded by loved ones can be a costly proposition.
Much has been made of the recession's effect on recent college
graduates; they're pouring lattes and surfing sofas. And aging
parents can run through money at rates that would challenge
Donald Trump's next wife.
But here's the good news: There are some tasty tax breaks
for the Sandwich Generation who are helping family members
through tough times. That kid on the couch could save you
almost $6,000 in taxes, according to sample calculations
performed for Reuters by the Tax Institute at H&R Block. The
potential savings for supporting an aging parent are even
Here's how the tax code can help you take care of
-- Watch your child's income. If you have an adult child
living at home, and they're only earning money around the edges
doing odd jobs, it might help if they don't make too much. "The
magic number is $3,650," explained Kathy Pickering, executive
director of the tax institute, a research affiliate of the tax
preparation firm. "An adult child who moves back home and earns
less than $3,650 in a year meets the dependency requirement
that enables you to claim him as a qualifying relative."
You wouldn't want to discourage work, of course, but if it
looks like your recent graduate's income is going to be
borderline, "you might want to think about an unpaid internship
instead," says Pickering.
-- Take the breaks. Once your adult child qualifies as a
dependent, you get an additional personal exemption for him.
And you can include the extra medical bills you're probably
paying (like the premiums for keeping him on your plan) in your
medical expenses. The bottom line? A family with $120,000 in
income whose boomerang kid produces an additional $10,000 in
medical expense would see their federal tax bill drop from
$14,369 to $8,706, saving $5,663, says Pickering.
-- Work with your siblings to help Mom. Your aging parent
doesn't have to live with you to qualify as a dependent.
(Neiter does your child, for that matter.) If Mom is in a
nursing home or assisted living facility and you provide more
than half of her support, she's a dependent. You don't even
have to do it all by yourself -- all of the money that you and
your siblings put in together can be counted as one.
Let's say your mother's expenses total $55,000, and she
spends $25,000 a year of her Social Security payments and
savings. If you pay $15,000 and your sister pays $15,000, you
or your sister can claim her as a dependent. Either sibling can
claim her on their return: You can assign Mom to the one with
the highest tax bracket, or take turns every year.
-- Consider the gift-tax exemption. Taxpayers who want to
help relatives can give them $13,000 a year, without triggering
any gift-tax consequences, notes Deborah Cox, vice president
and wealth adviser with JP Morgan Private Bank. That's the
limit for one individual giving money to another individual; a
couple could give another couple as much as $52,000 every year.
If you are paying medical costs for your parents, you can pay
them directly to the provider and they won't even count against
-- Once your mother is a dependent, all of her medical
expenses become yours, for the purpose of deducting them on
your tax return. If that same $120,000 couple had a dependent
parent with $40,000 in medical expenses (easy to do if she
lives in an assisted living facility or nursing home), the
family's tax bill would be $5,499, says Block's tax institute.
That's a savings of $8,870. And if they are taking care of
Grandma AND have that boomerang kid on the couch, their tax
bill would fall all the way to $1,201, saving them $13,168.
That ought to cover the therapy bills nicely.
(editing by Gunna Dickson)