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Claiming a Dependent Even if They Don’t Live with You: From advisor Evan Hewitt …

Before I say anything else, let me put a big ‘ol qualification out there: we are not tax professionals! That said, as advisors, we interact with every corner of the financial world on behalf of our clients, finding wins wherever we can. Sometimes, we see opportunities on your tax returns.

For those of you caring for an elderly parent, are you claiming that member as a dependent on your tax return? Whether you can or cannot does not simply come down to whether or not they live with you. Typically, there are two requirements:

  1. Your parent does not exceed the gross income test limit for the tax year ($4,400 in 2022), which usually does not include Social Security income and
  2. You pay more than half of their household expenses, and the amount you pay exceeds your parent’s income by at least one dollar. (Perhaps it is the fair market value of rent for the room you provide them in your home, the cost of food to feed them, medical bills, etc.).

Notice this criteria does not say anything about living with you. Your parent could be living in a nursing home, some other house, a facility, or anywhere and still qualify as a dependent on your return. (Make sure they’re filing a tax return appropriately in tandem.)

What’s the advantage of claiming my parent as a dependent? The Child and Dependent Care Tax Credit. The expenses you pay for your parent’s care can be credited to you up to a certain amount—potentially thousands of dollars. Read more about it from the mouth of the IRS horse. Additionally, if you are specifically paying for their medical expenses, those expenses may be deductible on your tax return. (There are more specific details to qualify for that deduction. For the sake of this article, just be aware.)

Lastly, this does not only apply to parents. There is a specific list of “qualifying relatives” the IRS permits you to claim—aunts, uncles, step-parents. Click here for the official list.

So, if you think this situation might be relevant to you, contact your accountant or contact us if you are wondering if this may be a pending situation for you and yours.

Qualifying for Social Security: Social Security benefits are a crucial part of retirement income for millions of Americans. As you think about the future, knowing whether you have enough credits to qualify for Social Security or receive your spouse’s benefits would be good. To be eligible for your spouse’s benefits, you need one of the following:

  • 62 years of age or older
  • Any age and have a child in your care who is younger than 16 or has a disability and is entitled to receive benefits on your spouse’s record.

Your full spouse’s benefit could be up to one-half the amount your spouse is entitled to at their full retirement age. You will get a permanently reduced benefit if you receive your spouse’s benefits before you reach full retirement age.

You will receive that amount if you are eligible for retirement benefits on your own record. If your benefits as a spouse are higher than your own retirement benefits, you will receive a combination of benefits that equal the higher spouse benefit.

These are important aspects of financial planning for the future as you consider retirement. It is not the one key piece, but it is an aspect that can be helpful as you survey the landscape of what is available. Don’t hesitate to reach out if you have questions.

Widows: We work with many clients who are widows, and it is a difficult road. We are always honored to walk alongside widows to help untangle finances, plan for the future, and make decisions that help them reach their goals. We found this infographic helpful in continuing to educate us on the particular difficulties widows can face:


Business Briefing

  • Rate Hikes Nearing an End?: Two Federal Reserve officials indicated Thursday that the central bank was close to the end of its aggressive interest rate hikes to slow the economy and bring down inflation. “We may need additional increments, and we may be very near a place where we can hold for a substantial amount of time,” Boston Fed President Susan Collins said. (Bloomberg)
  • Nvidia’s Positive Outlook: On Wednesday, Nvidia said it expects rapid growth as strong demand for advanced chips for artificial intelligence systems explodes. The company’s graphics processing units, or GPUs, are used in most AI systems, like ChatGPT. Nvidia reported robust demand for the chips from customers like cloud computing systems helped increase second-quarter revenue to $13.5 billion, up 101% from the same period last year. (The New York Times)
  • Flatlined Earning: According to a Bureau of Labor Statistics report published Tuesday, the youngest baby boomers—those born from 1957 to 1964—have struggled with flatlining earnings since they reached age 45. For those without a college degree, earnings have fallen in their later years. Baby boomers born from 1946 to 1964 are the second largest chunk of the U.S. population after millennials. The new study is the most extensive yet on boomers aged 55 to 64, who were as young as 14 when first interviewed in 1979. The study found that their earnings surged until age 24, but their wage growth slowed through age 44, when it hit a wall, setting them up for significant challenges as they approach retirement. (Bloomberg)

How Wealthy Are You? For a Monday morning musing, we wanted to offer this graphic for your thoughts: