Caring for Elderly Relatives: Using the Tax Laws to Save the Most for a Family

Welch, Julie A.; Gardner, Randy
June 2003
Journal of Financial Planning;Jun2003, Vol. 16 Issue 6, p28
Academic Journal
This article outlines several guidelines for people in the U.S. who support elderly relatives in gaining tax savings. A taxpayer can usually claim an exemption deduction for himself, a spouse, and dependents. Although tax savings may seem small, they are more than ten percent of the total tax for married couples and heads of household with $40,000 of taxable income. To claim someone as dependent, five tests must be met: support, relationship, gross income, married filing jointly and citizenship. The taxpayer must provide over half the support of the dependent. The dependent must be someone who is related to the taxpayer or someone who lived with the taxpayer the entire year. An older dependent generally cannot have income of more than $3,050 in 2003. A taxpayer cannot file an exemption deduction for someone who files a joint return with his spouse. The dependent must be a citizen or resident of the U.S. or a resident of Mexico or Canada. A family, through planning, can give the exemption deduction to the family member who will receive the most tax savings from the deduction. In some situations, the tax benefit of the exemption can be salvaged by using a multiple support agreement to designate one person as the provider of over half of the support.


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