The IRS allows you to deduct expenses incurred to support your relatives from your taxable income, subject to certain restrictions. Your deduction could be quite substantial, but if you misapply the tax rules you could end up with an unexpected tax bill at some point in the future. For this reason, it is important to understand which relatives and which expenses qualify for the deduction.
You are allowed a dependent exemption for each relative that you support. For purposes of claiming an exemption, you must provide more than half of your relative’s support during the tax year, and no one else must have provided more than half of your support. The exemption allows you to deduct $3,800 from your taxable income per dependent, as of the 2012 tax year. Qualifying relatives include your child, stepchild, foster child, grandchild, niece, nephew, grandparent, parent, stepparent, in-law, sibling, half sibling, aunt or uncle. Restrictions based on income, residence and citizenship apply to the dependent exemption. In some cases your relative must live with you, and in some cases his income must not exceed $3,700.
Multiple Support Agreements
If you provide support for a relative jointly with someone else – if, for example, you and your sister jointly support your developmentally disabled brother – the IRS grants you a limited ability to claim the dependency exemption even if you didn’t pay more than half your relative’s expenses. As long as each of you provides more than 10 percent of these expenses and the total joint support exceeds 50 percent, you and your partner(s) can take the exemption in alternate tax years by filing Form 2120 along with Form 1040.
Medical and Dental Care
The IRS offers a tax deduction for medical and dental expenses that apply to any amounts you pay that exceed the first 7.5 percent of your adjusted gross income. This minimum is scheduled to increase to 10 percent in 2013. You may include in this amount any medical or dental expenses that you pay for your spouse or a dependent for whom you claim an exemption. To claim the deduction, you must have actually paid these expenses during the tax year, and they must not have been reimbursed under an insurance policy.
Child and Dependent Care
If your relative is your child under age 13 or a developmentally disabled adult and you pay for his care so that you can look for a job, you may be able to claim the child and dependent care tax credit. A tax credit is even better than a deduction, because it is subtracted directly from your total tax due rather than from your taxable income. As of 2012, the credit was worth up to $3,000 for one dependent or $6,000 for two or more.
David Carnes has been a full-time writer since 1998 and has published two full-length novels. He spends much of his time in various Asian countries and is fluent in Mandarin Chinese. He earned a Juris Doctorate from the University of Kentucky College of Law.