Tip No. 16: Relief for the Weary

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Did you support your aging parent last year? Then you could be eligible for some write-offs.

For many of us, it's a rite of passage: As our parents age and become unable to care for themselves, their children become caregivers. If you cared for an aging parent last year -- either through financial support or by caring for him or her in your own home -- you may be eligible for a tax break. Here's what you need to know.

Paying for a Parent's Care
If you paid for more than half the support of a parent last year, you may qualify for a $2,800 dependent-exemption deduction on your 1040. To qualify for this break, however, your parent's gross income last year (not counting nontaxable items like Social Security benefits) must have been less than $2,800.

You still may be eligible for the break even if you split the bills with your siblings (again, assuming that you together paid over half your parent's support and that your parent had gross income under $2,800). In this case, you and your siblings must agree to designate one sibling to claim a dependent-exemption deduction for your parent. (One rule: That sibling must have also paid over 10% of the total support for the year.) Keep in mind, you are allowed to "rotate" the exemption among the siblings from one year to the next. So you can claim the tax break this time and give your sister her turn when she files her tax return.

One thing to remember is that all siblings who paid over 10% of the bills have to agree to the deal. To prove as much, each must sign a Form 2120 (Multiple Support Declaration). The sibling who claims the exemption then must include the forms with his or her return.

Claiming a Parent's Medical Expenses
Even if your parent's income was greater than $2,800 last year, you may be able to write off any medical expenses paid, assuming you also provided at least half of his or her total support. Unfortunately, only medical expenses in excess of 7.5% of your adjusted gross income, or AGI, are deductible.

That may seem like a lot, but consider this: Paying for an elderly parent to enter a lifetime-care facility could partially qualify as a medical expense. If you helped move a parent into this type of facility last year, then you're all too familiar with the costly entrance fees these places usually charge. A typical deal could involve an entry fee of $50,000 and a big chunk of that might be prepaid medical services -- enough to get you over the 7.5%-of-AGI hump. So be sure to ask the facility for information on deducting part of the upfront cost as a medical expense. (And if your accountant balks at this maneuver, tell him to look up IRS Revenue Ruling 93-72.)

Favorable Head-of-Household Status
Failing to claim the favorable head-of-household, or HOH, filing status is one of the most often overlooked tax breaks around. You'll almost certainly qualify if you are single and your parent both lived in your household and can be claimed as a dependent for last year. In fact, even if your dependent parent lives in his or her own place, you are still eligible for HOH status as long as you provided over half the cost of maintaining that household.

Why is HOH status such a big deal? Because as a head of household, you enjoy a larger standard deduction than a single filer ($6,450 vs. $4,400) and looser tax brackets (for instance the 28% rate kicks in at $35,150 instead of $26,250). So depending on your income level, you could easily save hundreds of dollars -- perhaps more -- on your tax return.