Raise your children well. They may choose your nursing home and may even provide support you with financial support in your old age. If you’re lucky to have a child who turns the tables on you and provides you with support, you may get a question like I did: Are gifts to parents tax deductible?
A taxpayer sends a portion (about $1,500 each month) of his income to his parents who live overseas. While he is employed, his wife is not. So, when he sends money to the parents, is is considered a gift and is it tax deductible? In his case, his parents live overseas but the response is still the same.
I can only hope that my children will be as generous to us in our later years as you are with your parents. Your gift is probably greatly appreciated by your parents and helps them enrich their quality of life. While your monthly payment can technically qualify as a gift, it has no impact on your personal income taxes under current tax rules.
Technically, you and your spouse may gift a maximum amount of $14,000 per year per person. This would equal a total gift of $28,000 by your wife to your parents. Add that to the $14,000 per year per person that you can gift. That means you can gift a total of $56,000 from your household to their household. But this gifting only makes a real difference when calculating gifts to reduce the total of a taxable estate for estate tax purposes. If your personal estate is worth less than the federal exemption (currently about $5.2M and possibly a non-issue next year if the tax bill winding its way through Congress is finalized), then it’s not likely to be an issue.
On the other hand, if your parents could qualify as dependents and you paid for their medical services directly, then you could find that some or all of your cash transfers may qualify as itemized medical deductions.
After January 1, 2018 the new tax law will be in effect. Based on what I see, this itemized medical deduction option may be moot as there will be a lower incentive to itemize after the standard deduction increases.
If you’d like an objective second opinion about your taxes and are looking for a road map on how to live better by planning well, please reach out to Steve Stanganelli, CFP®, CRPC®, AEP® at Boston Tax Planners, a service of CVWA LLC. Email him at Steve@BostonTaxPlanners.com.