Are You Supporting Your Parents?

If you are helping support your parents, you may qualify to claim a tax benefit if you are providing over half of your parents’ support. But you may be having difficulty showing over half of the support for both parents, thus failing to qualify for the dependency exemptions (and for the beneficial head of household filing status if you are a single taxpayer).

You may overcome this problem by designating the support to only one of your parents.  This may allow you to claim at least one parent as your dependent and, if you are unmarried, permit you to file as head of household.

To qualify for the head of household filing status, an unmarried taxpayer must maintain a household that constitutes one or both of his or her parents’ principal abode, and at least one of the parents must be the taxpayer’s dependent, i.e., must individually have gross taxable income for the year of less than the personal exemption amount ($3,650 for 2010) and receive over half of his or her support from the taxpayer.  The taxpayer himself need not reside in the household he or she maintains for the parents.  The home could even be a retirement home or facility.

To accomplish this, the taxpayer must be able to provide proof that the support is for one of the parents only.  Otherwise, the support will be designated as a “fund” equally allocated to both, making it harder to qualify as providing over half the support for either one.  The IRS suggests a notation on a check as an acceptable designation procedure.  It says, “Notations by the maker on support checks purporting to allocate funds to particular household members made payable to an individual having custody of a claimed dependent will be regarded as evidence of actual support.”

Although having no effect on filing status, when several people together provide over 50% of support, all who provide more than 10% of the support can agree about which of them will claim the dependent.  Of course, the agreeing parties must also otherwise qualify to claim the dependent.  Each person who is relinquishing the dependent exemption must complete an IRS form for attachment to the return of the taxpayer claiming the dependent.

If you are supporting both parents and would like to discuss how the foregoing might apply to your specific situation, please give this office a call.