As many Santa Clarita Residents are in the process of compiling information for their tax returns, this is the month for parents and children to discuss the dependency exemption. Many adult children are caring for parents who have diminished income and need the resources supplied by their children in order to sustain their lifestyles.
A child may claim a personal exemption for a parent if the parent:
• Has gross income of less than the personal exemption amount ($7,825 (single) – $15,650 (joint) in 2007)
• Did not file a joint return for the year
• Qualifies as the child’s dependent
A parent qualifies as the child’s dependent if the parent:
• Received over half of his or her support from the child during the taxable year
• Is a U. S. citizen, resident or national or a resident of Canada or Mexico, for at least part of the taxable year
Eligible support, whether provided by the parent or child, includes:
• Food, shelter, clothing, medical care or similar expenses
• Benefits provided in-kind, such as the fair rental value of in-law quarters in the child’s home
• Social Security benefits expended on the above items
To assure that the child pays for more than half of the parent’s support needs, the child and parent should carefully coordinate expenditures and the source of funds used. While a child must ordinarily contribute more than half of a parent’s support to claim a personal exemption for the parent, a child contributing less than 50 percent is entitled to the exemption if:
• The child contributes at least 10 percent
• The child and other persons, as a group, contribute more than half of the parent’s support
• The other persons who have each contributed at least 10 percent sign declarations renouncing a right to claim the exemption (Form 2120)
• The child claiming the exemption attached the Form 2120 to the child’s return.
In this way, if multiple children within the family are contributing to their parents’ support and meet the guidelines, the exemption can be distributed on a yearly basis between the number of children who have contributed support. It is important the family speaks with their tax preparer regarding these issues to ensure proper documentation is obtained to prove the validity of the exemption.
Ms. Macdonald’s practice is limited to Estate Planning, Probate & Elder Law. Ms. MacDonald maintains her practice in the Santa Clarita Valley at 27013 Langside Avenue, Suite A, Santa Clarita, California. She can be reached at 661-251-1300.