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How You Can Work Out Multiple Support Agreements

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Dec 18th 2017
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As Congress attempts to pass the Tax Cuts and Jobs Act bill in what would be the biggest overhaul of the tax code in decades, there are kinds of exemption you can claim for dependents to provide a valuable break.

Legislators are proposing under the bill to consolidate personal exemption for the taxpayer and taxpayer’s spouse into a larger standard deduction. On the personal exemption for children and dependents, that would be consolidated into an expanded child tax credit and a new family tax credit.

But let’s set aside these considerations, because such proposals might change or be dismissed as the House and Senate reconcile their versions of the bill, and focus on what the tax code allows.

Under the current tax law, each exemption lowers by $4,050 the amount of income subject to tax for 2017

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’s a ceiling of $4,050 for 2017 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, gifts 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 2017 or (2) a full-time student who spent at least five months (they didn’t have to be consecutive) in school and didn’t attain the age of 24 by the close of 2017.

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 doesn’t 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 agreement rules, the exemption goes to one of the members, provided the group satisfies these three requirements: (1) Someone in the group furnishes over 10 percent of the support; (2) the contributors, as a group, furnish over 50 percent; and (3) each contributor, had he or she furnished over 50 percent, could have claimed your parent.

Suppose, as is usually so, more than one contributor puts up over 10 percent for 2017 and qualifies for the exemption. Then you must agree among yourselves on who takes it, a decision that binds the group just for 2017. You and the others can take turns year by year in claiming the exemption.

If you’re 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 needn’t, however, ask under-10-percent contributors to sign those forms.

You may qualify for an additional break on medical expenses. Your itemized deductions on Form 1040’s Schedule A include your payments in 2017 for medical care, but just for the portion of such outlays that top 10 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 (include premiums for health insurance and transportation to obtain medical services) as part of your deduction for the part of the expenses that exceeds the nondeductible floor.

Additional articles. A reminder for accountants who would welcome advice on how to alert clients to tactics that trim taxes for this year and even give a head start for next year: Delve into the archive of my articles (more than 225 and counting). 

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