The aging population and the challenging job market has “sandwiched” middle-aged Americans. As more and more elderly parents outlive their retirement savings
and unemployed college graduates return to the nest, this generation often finds themselves caring for either their adult children or their elderly parents, and sometimes both.
In both cases, the additional financial responsibility can significantly affect family finances. While the financial stress is certainly not the only factor worth considering, a quick review of the dependent exemptions rules may help to alleviate a small portion of that stress.
In 2013, the personal exemption amount is $3,900, subject to the phase-out limitations beginning at $300,000 for married filing joint returns and $250,000 for single filers. There are two ways to claim a dependency exemption on your tax return, in addition to the personal exemptions for you and your spouse. You may claim an exemption for a “qualifying child” and/or a “qualifying relative,” (i.e. – the adult child and the elderly parent).
There are “tests” to determine the dependency exemption for each type. Before applying these tests, the following criteria must hold true – the potential dependent should be a US citizen, not filing a joint a return and not be eligible to be claimed on another’s tax return.
For a qualifying child, an individual must pass all five tests –
For a qualifying relative, an individual must pass four tests –
The only way to claim a person as your dependent is if the person is a qualifying child or relative based on the tests above. Each test above can be easily applied to your unique situation and hopefully, help to alleviate a small portion of the liability when experiencing the mid-life crunch. So, if you find yourself caring for your adult children and/or your elderly parents, just ask yourself the questions above to know whether you can claim them on your tax return.
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