Growing up, most children are going to require financial help from their parents. As you grow into adulthood, some people might see these roles flip as they find themselves helping their parents out financially. Since these people are also trying to pursue college, a career, or much more, this can leave quite a financial burden on the child. The federal and state governments understand this, which is why they have set up a variety of tax relief options for people in this conundrum. So in order to avail these tax relief options, you should be aware of some of the important tax strategies.
As far as taxes go, you’ve probably heard of your parents claiming you as a dependent, but most students have never heard of claiming their parents as their dependent. While this might seem hard to believe, it’s more common than you’d think.
Claiming a parent as your dependent could land you a $500 tax credit each year to help cover the expenses of taking care of them. This is why it’s essential to claim them as a dependent if you qualify.
Can I Claim My Parents as Dependents
Not every parent is allowed to be claimed as a dependent. There will be several qualifications that have to be met before that can happen — including your parent’s income and how much you support them financially.
In terms of income, the threshold for your parents will change each year. Generally, you can expect the income limit to be around $4,300. Any parent earning less than that each year will be eligible to be claimed as a dependent. The good news is that number typically won’t include Social Security benefits.
If your parent meets the gross income requirement, the next step is to see if you meet the support requirement. This states that you must pay for at least half of your parent’s financial support. In the event you do, there’s a good chance you can claim them as a dependent.
In addition to claiming your parents as a dependent — in exchange for a $500 tax credit — there are plenty of other options for you to consider come tax season. Don’t worry, we’ll detail some of the most prominent tax strategies that will help you year-in and year-out.
Buy or Finance Your Parent’s Home
There might come a time when your parent’s home is paid off and isn’t having much of an impact on their yearly taxes – a positive impact, at least. In this case, it might be worth it to buy your parent’s home and treat it like a second home. This allows you to deduct mortgage interest and property taxes each year.
If you wanted to treat it more like a rental, you can lease the property back to your parents to possibly break even on the mortgage. This can work in both your parent’s favor and your favor to give tax relief where it’s needed most.
Paying for Parent’s Medical Expenses
In the event you claim your parent(s) as a dependent, you could list any qualifying medical expense as an itemized deduction on your yearly tax return. It should be noted that you must be paying the medical bills directly and not simply reimbursing your mother that money — since there’s no clear way of confirming that at a government level.
This can also be used by anyone who doesn’t claim their parent as a dependent, but still pays their medical bills. This is available if your parent earns more than the $4,300 yearly income it takes to be claimed as a dependent.
Multiple Support Declarations
A multiple support declaration is filed when two or more siblings combine to cover over half of the parent’s financial support. This is a great option for anyone that covers at least 10% of their parent’s financial support — so long as your support combined with your sibling’s support exceeds 50%.
The stickler here is each sibling must be able to claim them as a dependent. Furthermore, they must sign the declaration that states you get to claim the parent as your dependent. Otherwise, it could go to another sibling.
Child and Dependent Care Credit
This credit is available to anyone that has to pay someone else to care for their dependent — in this case, their parent. It allows you to take a credit equal to anywhere from 25-30% of $3,000 in expenses.
In order to qualify for this, your Mom or Dad must’ve lived with you for at least half the year due to being physically or mentally unable. You’ll also need to prove that you were looking for work or working during the time they were being cared for by someone else.
Some Key Takeaways:
With the above tax strategies, you can effectively start to put yourself in a better financial position each year you file your taxes. There’s a lot of relief out there that most people will neglect, largely due to the fact they don’t know it exists. If you’re looking for extra help come tax season, contact us at United Business Owners Solutions today to speak with one of our professionals. We can help you minimize your taxes and walk through tax season with confidence.