We are paying for my adult daughter's dental expenses. She requires full-mouth teeth crowning, at a cost of approximately of $65,000 (which, though she has a very nice income, is more than she can comfortably afford). Can we get a tax credit or deduction for our contribution?? Larry, Cincinnati
You can claim a deduction for her medical expenses only if she qualifies as your dependent for tax purposes, says Mark Luscombe, principal federal tax analyst at CCH.
From the details you give, however, it doesn't sound as if she would qualify. Assuming she is at least 19 years old, one of the conditions she would have to meet to be your dependent is having a gross income of less than $3,700?a whole lot less than the "very nice income" you refer to. For all the criteria that determine whether you can claim her as a dependent, see IRS Publication 501.
Some alternatives to easing the pain of these medical costs:
One is for you to give some money directly to your daughter, and for her to pay for these medical costs herself. If she itemizes her deductions on her tax return, she can claim as a deduction the amount of medical expenses she pays that exceed 7.5% of her adjusted gross income. To illustrate how this might work, let's assume she has an AGI of $75,000 this year and has no medical bills other than the dental work. Since 7.5% of her AGI amounts to $5,625, she could deduct $59,375 from her taxable income (the $65,000 bill minus $5,625). Such a reduction in her taxable income would close to eliminate her tax liability for the year, estimates Gary Schatsky, president of Objectiveadvice.com, a New York City financial planning firm. In other words, you wouldn't get a tax break, but your daughter would.
One complication: By giving her all that money, you would have to file a gift tax return?currently required if the value of gifts one individual gives another in a particular year exceeds $13,000 (or $26,000, if it's a joint gift from a married couple). You wouldn't have to pay any taxes this year, but you or your estate one day might have to, if the lifetime sum of all your gifts subject to the gift tax exceeds the IRS lifetime limit, currently $5 million per person. (Go to the IRS site for more gift tax info).
Let's assume you're that wealthy and that generous. In that case, you could write a check directly to the dentist. Even if the check exceed the usual $26,000 trigger on gift taxes for a couple giving jointly, it wouldn't eat into your lifetime gift tax exemption, explains Luscombe, because payments for others' qualified medical and educational expenses aren't subject to the gift tax.
So what is more valuable?the medical tax deduction to your daughter, or the exemption of gift taxes for you? Depends on your situation. If you're already in the habit of giving an annual gift of no more than $13,000 apiece to stay under the gift tax radar, says Melissa Labant, a certified public accountant in Washington D.C., that probably means you are concerned about substantial future estate taxes. "In that case," says Lambert, "I would say the parents should probably pay for the dentist directly and take the gift tax exclusion." To file a gift tax return, use Form 709.
-- Judith Feldman
Got a question for the help desk? Send it to helpdesk@cnnmoney.com.
Source: http://helpdesk.blogs.money.cnn.com/2012/02/28/are-my-childs-dental-expenses-tax-deductible/
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