Tax Planning for Elders

by Ira M. Leff, Esq.

September 3, 2008

Older Americans present some unique tax planning opportunities.  For example, consider Harold and Evelyn Green.  Harold has a big income from two pensions and Social Security.  Evelyn receives a small pension and Social Security.  Evelyn has diabetes, peripheral vascular disease and emphysema.  Her medical costs are very high, but not high enough for the couple to deduct them on their joint return.  (In order to take advantage of this deduction, their medical costs would have to exceed 7.5 percent of their combined adjusted gross income.)  However, if Evelyn pays her expenses from her own, separate bank account, and the couple reports their taxes as married filing separately, Evelyn can use her Medical expenses to offset her income and reduce their total tax cost.

A single, divorced or widowed person caring for an elderly parent in her home may be entitled to file as head of household rather than single.  In order to do so, the parent must reside with the child for the entire year.  The parent must be a U.S. citizen or resident, or a resident of Canada or Mexico.  The parent may not be claimed as a dependent on another return.  The parent may not have earned more than $3,500 in 2008.  And the child must pay for at least half of the parent's household expenses during the year.

A child who is eligible to claim a parent as a dependent may also be eligible to claim the dependent care credit if the child paid a third party to care for the disabled parent.  In order to be eligible, the parent must be incapable of providing his or her own care and the child's home must be the parent's principal residence.

Thanks to Murray Siegel, CPA for forwarding this information to me.  If any of you have a topic you would like me to address, feel free to let me know.

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