Tax Breaks For the Sandwich Generation
If your kid can't land a job or you're helping an aging parent, tax rules can help you out. 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 greater.
Here's how the tax code can help you take care of everybody:
Watch Your Child's Income. The magic number is $3,650. 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.
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.
Work With Your Siblings To Help Mom. Your aging parent doesn't have to live with you to qualify as a dependent. (Neither 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.
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. Consider the Gift-Tax Exemption.
Taxpayers who want to help relatives can give them $13,000 a year, without triggering any gift-tax consequences. 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 that limit.
For more go to: www.msnbc.msn.com