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Show Claiming dual-support dependents By KENNNETH J. ROSE Editor's Note: Bottom Line au-- au-- thor Kenneth J. Rose is the owner of Rose & Associates, a small busi-'" busi-'" ness tax consulting and financial planning firm in Bountiful. Money wise taxpayers know that they can claim an exemption on ' their personal income tax return if they contribute more than 50 percent per-cent of the support of a dependent and certain other requirements are met. But, did you know that you may be able to claim an exemption even if you provide less than one-half one-half of the support of a dependent? A "multiple support agreement" is the vehicle that qualifies this exemption. In general, five tests must be met in order to claim a person as a dependent de-pendent for tax purposes: (1) The person must have no more than $1950 in gross income in the year in which he or she is claimed as a dependent. (Note that her personal income tax form (even though the other four dependency tests are met) without a multiple support agreement. Together the sisters provide more than 50 percent of their father's support, so under the terms of a multiple support agreement one of the three could be designated to claim the exemption. The sisters might even agree to rotate the exemption among themselves from year to year so all three can take advantage ad-vantage of this tax break. Since other tax benefits can be involved, the person who is to claim the exemption should be designated early in the year. For example, if you are the one to claim the dependency depen-dency exemption this year, you should also pay any of your dependent's depen-dent's medical bills directly to the doctor or hospital. Don't forget to also pay for those medical prescriptions. prescrip-tions. Lumping the medical costs you pay for dependents in with your own medical expenses may allow ' you to claim a medical deduction on your tax return-provided your total medical outlay exceeds 7.5 percent of your gross income. If you just gave the dependent money for living liv-ing expenses including doctor's bills, you would not have this added benefit. If you are contributing to the support of a parent or other relative, plan now to reap large tax benefits. ' gifCiii i m Vf SMiiiikMidllK- im'J w, lip"" A Vh social security benefits are generally general-ly not taxable and so would not be counted toward gross income.) (2) The person must be related to the taxpayer claiming the exemption exemp-tion or must have lived in his household for the full year. (3) Must be a citizen or resident of the United States. (4) Must be ineligible to file a joint tax return. (5) The taxpayer claiming the exemption must " have provided more than 50 percent of the person's per-son's support during the year. (Support includes the cost of food, lodging, and clothing, as well as transportation, recreation, schooling and medical and dental care.) If the first four tests are met, a dependency exemption can be claimed even if the support test is not met provided a multiple support agreement exists. Anyone who provides pro-vides more than 10 percent of the support of a dependent can be eligible eli-gible to claim the dependency exemption if, under a multiple support sup-port agreement, his or her contribution contribu-tion added to that provided by others oth-ers furnishes more than 50 percent of the dependent's support and the others agree in writing on IRS Form 2120 "Multiple Support Declaration," Declara-tion," not to claim the exemption. The person claiming the exemption would attach these forms to his or her personal tax return. Multiple support agreement are common among siblings who join-dy join-dy support a parent. For example, three sisters might each contribute $1,500 per year to the support of their father who has annual interest income of $800 and social security benefits of $900. Singularly none of the sisters provides more than half of his support, so none of them could claim him as a dependent on ' - - s " ' "II fi GEORGE S.BURBIDGE EZRA T. CLARK ' |