You as an individual are taking care of your own immediate family and caring for an elderly parent or relative on top of that. Paying medical expenses and healthcare, scheduling and arranging appointments, and balancing their finances on top of your own money among other things can be exhausting and a grueling task to do alone.
Fortunately for you all is not lost, if you meet select criteria you can claim your loved one as a tax dependent. Let's go ahead and explore some possible ways we as a tax accounting firm can help you in financially caring for yourself and your loved one.
Is he/she qualifiable as a Dependent?
The Internal Revenue Service defines a Dependent as a qualifying child or relative. A qualifying relative for example can be your mother, father, grandparent, stepmother, stepfather, mother-in-law, or father-in-law, regardless of his/her age at the time.
There are 4 standards of criteria to check out in order for a person to be your qualifying relative: not a qualifying child test, member of household or relationship test, gross income test, and support test.
-- Residency
The prospective dependent candidate must be a United States citizen, resident alien, U.S. national, or a resident of Canada or Mexico. A parent or relative doesn't have to physically live with you in-house in order to qualify as a dependent.
If your qualifying relative does live with you, be advised to include a percentage of your mortgage, utilities, and other expenses when you figure out the amount of money you contribute to their support, why wouldn't you, they are using those resources you are covering.
-- Not a Qualifying Child
Your relative cannot be claimed as a qualifying child on another person's tax return in order for you to claim them as a Dependent.
-- Income
The income of the prospective Dependent cannot exceed the personal exemption amount of $4,300 for this calendar year 2020. If married, your prospective Dependent cannot file a joint tax return with their spouse unless that joint return is filed only to claim a refund of withheld income tax or estimated tax paid.
-- Support
You must account for >50% of a relative's total support for the year including costs for food, housing, medical care, transportation etc.
Claiming the Dependent Care Credit
You may be eligible to claim the child and dependent care credit if you paid work-related expenses for the care of a qualifying individual. This credit in general terms is usually a percentage of the work-related expenses you paid to a care provider for the care of a qualifying dependent. The percentage depends on your adjusted gross income. Work-related expenses qualifying for the credit are those paid for the care of a qualifying individual to enable you to work or actively look for work.
In addition, expenses you paid for the care of a disabled dependent may also qualify for a medical deduction (see next section). If this is the case, you must choose to take either the itemized deduction or the dependent care credit. You cannot take both but should take one or the other.
Claiming the Medical Deduction
In the situation of claiming the medical deduction because of covered medical expenses for your Dependent, your relative does NOT have to meet the income test, but you still must provide >50% of the support for that relative.
The medical deduction is limited to only those medical expenses that exceed 7.5% and you can include your own personal medical expenses yet to be reimbursed when garnering the total amount. Any medical expenses of your relative’s that you covered works toward that 7.5% number. Your parent residing in a nursing home or assisted-living facility is included. Food or other amenities are not considered medical expenses.
What if you share caregiving responsibilities?
If you share the duty of caregiving for a relative with another person also contributing, only one of you - the one proving more than 50 percent of the support - can claim the dependent. Sometimes, however, neither caregiver pays more than 50 percent. In that case, you'll need to fill out IRS Form 2120, Multiple Support Declaration, as long as you and your sibling both provide at least 10 percent of the support towards taking care of your parent.
Your Next Move?
Did any of this apply to you or spark any questions concerning your situation? If you have no questions after this reading then you're well on your way to being an expert! If you do have questions though, you are in the majority of people, and any questions arising from this article are answerable through any of our contact information throughout this site, risk-free and worry-free.
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