How do I treat my taxes for a partially dependent parent?

Question

I'm in a situation where I'm making a good income, but my parent does not make enough money to float the taxes and living expenses. Usually she pays 0 taxes. (Her only income is Social Security and some small dividends.) I pay for many things related to the house, the insurance and the cars (because I can). We do not live together, and I do not want to claim her as a dependent ( besides it's not 50% of her income ). But I do contribute probably around $12k - $15k a year. What the best way to get some tax benefits under the circumstances? Do I treat the money as a gift? I'm worried that as a gift, her income goes up by $10k, and she would potentially lose some benefits (the star exemption, for example).

Answer 1

Since you aren't contributing enough to count your parent as a dependent, there is no tax benefit to you for helping them.

Gift tax is paid by the giver when total gifts to an individual exceed $14k/year and the lifetime exclusion of $5.49M has been exceeded. If your annual gifts exceed $14k (subject to change, as is the lifetime exclusion amount) then you have to file Form 709 with your return, but you will not pay gift tax unless you've both exhausted the lifetime exclusion and gift over $14k/year. If you pay medical bills directly, that amount does not count toward the $14k/year limit, so you could likely assist in excess of $14k/year and still avoid having to file the extra form.

Most assistance programs are income-based, and gifts do not count toward income, but you'll want to check on the specific requirements for programs they are enrolled in.

Answer 2

You don't get any tax benefit.

When you are helping a relative or a friend in such situations the income is just gone. The only way to get around this is if you contribute to a charity, and they give it to your mom. You can then deduct the contributions to that charity. However, the IRS has cracked down on such situations and it probably is not worth pursuing. By the recent tax rules, that charity can use those contributions in which every way they choose, they cannot guarantee they go to your mom.

Given that you are closed to your allowed exclusion (14K for 2017), I would work to keep your number under that. If you are married, you each get that exclusion so you can give up to 28K.

I can't really speak to the reduction of benefits part as I am knowledgeable and more details on the type of transfer payments she receives would be germane to the discussion.