After World War II, the US birth rate increased dramatically, and the new arrivals were called “Baby Boomers”. As the Boomers approach and reach retirement, many are feeling family-related financial strains. If you supported one or both of your parents financially last year, you may be able to get some tax benefits based on support costs paid by you.

There are various options: You might be able to claim your parent as a dependent, or take a dependency care tax credit. Another way is to write off your mom or dad’s medical expenses.

The Internal Revenue Service’s common rule is that if you provided more than half of your parent’s annual income and met a few other requirements, you can claim your mom or dad as a dependent on your federal return. Each dependent lessens your taxable income by $3,800.

To claim the dependency exemption you have to meet a few IRS ‘tests’. First, you cannot be claimed as a dependent on someone else’s 2012 tax return. Also, your parent’s gross income in 2012 must have been less than $3,800. Next, you must have provided more than half of your parent’s financial assistance (or more than 10 percent if you split the support with your siblings and none of you provided more than 50 percent). Lastly, your parents can’t file a joint 2012 tax return. The one exception to this is if the joint return is only a claim for a refund and neither parent would owe tax on a separate return.

If you and your siblings shared the financial costs of supporting your parents last year and you’ll be able to claim the exemption, there needs to be some detailed IRS schedules included in the tax returns of each party who is taking a dependency exemption.

If you’re able to claim your parent as a dependent and you paid for his or her medical expenses, you may be able to deduct these costs. You can deduct any expense you pay for the prevention, diagnosis or medical treatment of physical or mental illness, and any amounts you pay to treat or modify any part or function of the body for health—but not for cosmetic purposes. You can also deduct the cost of transportation to the locations where you can receive this kind of medical care, your health insurance premiums, and your costs for prescription drugs and insulin. But, you can only write off medical expenses — yours, your parent’s or a combination of yours and your parent’s — that exceeded 7.5 percent of your adjusted gross income last year.

Here is an example:
Joe’s Adjusted Gross Income was $100,000, and she spent $8,000 on medical expenses. Because his expenses exceed 7.5 percent of her AGI, he can take the deduction for the amount above $7,500. His deduction is $500.