The exemptions that you claim for dependents provide a valuable break. Each exemption lowers by $2,500 the amount of income subject to tax for 1995.
To claim someone as your dependent, the key requirement is that generally you have to contribute more than half of his or her total support for the year. Also, there is a ceiling ($2,500 for 1995) on the amount of reportable income that a dependent is allowed to receive, not counting funds from tax-exempt sources like Social Security benefits, life insurance proceeds and inheritances. There is, however, no ceiling on the income of a son or daughter who was either (1) under the age of 19 at the close of 1995 or (2) a full-time student who spent at least five months (they did not have to be consecutive) in school and did not attain the age of 24 by the close of 1995.
The exemption rules are subject to other exceptions. They include a special break that salvages an exemption when, say, you and other family members share the support of an aged parent and no one member of the group contributes more than half of your parent’s support. The over-half requirement does not mean no member of the family group gets to claim your parent. The exemption remains available, courtesy of what the law refers to as a multiple support agreement.
Under the rules, the exemption goes to one of the members, provided the group satisfies these three requirements: (1) Someone in the group furnishes more than 10 percent of the support; (2) the contributors, as a group, furnish more than 50 percent; and (3) each contributor, had he or she furnished more than 50 percent, could have claimed your parent.
Suppose, as is usual, more than one contributor puts up more than 10 percent for 1995 and qualifies for the exemption. Then you must agree among yourselves on who takes it, a decision that binds the group just for 1995. You and the others can take turns year by year in claiming the exemption.
If you are the one who gets it, have each over-10-percent contributor sign a Multiple Support Declaration (IRS Form 2120), which specifies that he or she agrees not to claim the exemption. Submit the 2120 forms with your 1040. You need not, however, ask under-10-percent contributors to sign those forms, says tax-information publisher Commerce Clearing House.
Medical expenses: Your itemized deductions for 1995 include your payments for medical care, but just for the portion of such outlays that top 7.5 percent of your adjusted gross income.
Are you eligible to claim someone under a multiple support agreement? In that event, remember to count what you pay for that person’s medical care as part of your deduction for the part of the expenses that exceeds the nondeductible floor.
Help from the IRS: Need detailed information on multiple support agreements and other regulations for exemptions? Get a free copy of IRS Publication 501, Exemptions, Standard Deduction and Filing Information. Telephone 1-800-TAX-FORM (allow at least 10 days for delivery during filing season) or drop by the IRS office for your area.
