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As millions of Baby Boomers approach retirement age they are faced with a task most never thought they would have – supporting their parents. More and more Boomers, who should be planning for their retirement years, see a portion of their income and potential savings go to helping elderly parents pay for everyday things like groceries, medical bills, and utility bills.
Although some consider these additional costs a familial obligation, the reality is that these expenses eat into the potential savings of many and may be a contributing factor to a prolonged retirement.
There may be some relief, however, in the form of possible tax benefits. For instance, you may be able to claim a dependency exemption for a parent you are supporting, which could result in a tax savings as high as $1,000 depending on your tax bracket.
Generally, in order to claim a dependency exemption for a parent as a “qualifying relative,” the parent either must live with you all year as a member of your household, or must be related to you in accordance with IRS regulations. In addition, the parent’s gross income for the year must be less than $3,800 (for 2012 filing year), and you must provide more than 50% of the parent’s total support for the year.
If you share the cost of support with other relatives, such as your siblings, and that cost is more than 50% of the parent’s total support for the year, only one of the siblings may take the deduction.