The economy is slowly rebounding, but many families continue to struggle. In some cases, parents are providing financial help to adult children who can’t find employment in this tough job market.
If your empty nest got a little more crowded last year, your tax situation may change, too. Say your son couldn’t find a job after graduating from college last spring and he moved back home. Or your daughter and grandchild moved in with you after your daughter’s divorce.
Who qualifies as your dependent, allowing you to deduct an additional $3,650 exemption on your 2010 tax return? (Each exemption reduces your taxable income by that amount.)
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
It depends on the boomerang child’s age, income, how long he lived with you during the year (or in some cases, didn’t live with you) and whether you provided more than half of his financial support. Dependents can be classified as a qualifying child or a qualifying relative.
For example, if your recent college grad was under 24 at the end of last year and earned less than $3,650, he is a qualifying child and you can claim an exemption for him. But if he files his own tax return, he can’t claim an exemption for himself.
Your boomerang daughter could be a qualifying relative if she earned less than $3,650 in 2010 and you provided more than half of her support. Or even if your daughter made too much to qualify as your dependent, you could claim your grandchild as your dependent -- as long as your daughter agrees not to claim the child as her dependent. If you’re in a higher tax bracket than your daughter, claiming your grandchild as your dependent will save the family money. For more information on who can be claimed as a dependent, see IRS Publication 501, Exemptions, Standard Deduction and Filing Information.
New health cost write-offs
The health care reform law passed last year allows parents to take deductions for medical expenses they paid for children under age 27. Previously, the child had to be under age 19 or a full-time student under age 24. Don’t confuse this new tax break with a separate new provision in the Patient Protection Act that requires health insurers to allow children under age 26 to be covered on a parent’s policy.
For tax purposes, it does not matter whether your child is covered under your health insurance plan or is even considered a dependent. “If the child is under age 27 and incurs a medical expense that the parent pays, the parent can claim the deduction on their taxes, whether the child is a dependent or not,” says Mark Luscombe, principal federal tax analyst for CCH, a provider of tax software and information.
The parent must itemize to claim a tax deduction for medical expenses. And only those medical expenses that exceed 7.5% of adjusted gross income are deductible.
-
Here's Why I'm Upgrading to the iPhone 17The iPhone 17 is here. Learn what's new, where the best deals are and whether it's worth the switch.
-
September Fed Meeting: Live Updates and CommentaryThe September Fed meeting is a key economic event, with Wall Street keyed into what Fed Chair Powell & Co. will do about interest rates.
-
The Final Countdown for Retirees with Investment IncomeRetirement Tax Don’t assume Social Security withholding is enough. Some retirement income may require a quarterly estimated tax payment by the September 15 deadline.
-
Standard Deduction 2025 Quiz: How Much Do You Really Know?Quiz Test your knowledge of IRS rules that impact how much money you keep in your wallet.
-
New Bill Would End Taxes on Social Security Benefits in 2026: What Retirees Should KnowTax Law Congress could look to high earners to help offset lost revenue and possibly shore up the Social Security program.
-
IRS in Turmoil: GOP Budget Cuts and Staff Shake-Ups Threaten Taxpayer ServicesIRS Republican lawmakers advance a controversial budget bill that would gut IRS funding further, risking your 2026 tax filing season.
-
Cruise Lines Sue to Block Hawaii’s New Climate Tourism TaxState Tax Your vacation to the Aloha State could come at a higher price tag next year. Here’s why.
-
21 Last-Minute Gifts for Grandparents Day 2025 to Give Right NowHoliday Tips Last-minute gifting is never easy. But here are some ideas to celebrate Grandparents Day.
-
New $6,000 'Senior Bonus' Deduction: What It Means for Taxpayers Age 65-PlusTax Changes If you’re an older adult, a new bonus tax deduction could provide a valuable tax benefit. Here's how it works.
-
Claiming the Standard Deduction? Here Are 10 Tax Breaks For Middle-Class Families in 2025Tax Breaks Working middle-income Americans won’t need to itemize to claim these tax deductions and credits — if you qualify.
