Will Estate Taxes Be Repealed?

Next week, Congress resumes debate over whether it should permanently repeal the estate tax imposed when people die and leave their assets to their heirs. In 2001, Congress voted to reduce the tax until it is eliminated in 2010. But it is set to return in 2011 to a maximum 55% rate with an exemption on the first $1 million of the estate. House and Senate members have proposed bills for permanent repeal, and House members could take action as early as next week. Many groups, lead by Non-profit organizations and the tax and spend politicians and big government think tanks, are trying to reinstate the full estate tax and prevent the ultimate repeal. Please see the full article.

IRA's protected from Bankrupt's Creditors

In a unanimous decision, Rousey v. Jacoway, the Supreme Court held that creditors may not reach IRAs for petitioners who file bankruptcy. This means IRA's are treated the same as other pension type plans for Bankruptcy purposes. As a basis for its decision, the US Supreme Court relies upon the access restriction to IRA assets under federal law. Specifically, the Court looks at the 10 percent excise tax penalty for premature withdraws prior to age 59 1/2 to say that, while the assets in the IRA are vested, the penalty is sufficiently draconian that the full value of the assets contained in the IRA is only available "on account of age" so it is excludable from the bankruptcy estate under 11 USC 522(d)(10)(E).

Claiming a Parent as a Tax Dependent

If you are caring for your mother or father, you may be able to claim your parent as a dependent on your income taxes. This would allow you to get an exemption (currently $3,100) for him or her.

There are five tests to determine whether you can claim a parent as a dependent:

The person you are claiming as a dependent must be related to you. This shouldn’t be a problem if you are claiming a parent (in-laws are also allowed). Keep in mind, however, that foster parents do not count as a relative. To claim a foster parent, he or she must live with you for a year as a member of your household.

Your parent must be a citizen or resident of the United States or a resident of Canada or Mexico.

Your parent must not file a joint return. If your parent is married, he or she must file separately. There is an exception if your parent is filing jointly, but has no tax liability. If your parent files a joint tax return solely to get a refund, you can claim him or her as a dependent.

Your parent must not have a gross income of $3,100 a year or more. Gross income does not include Social Security payments or other tax-exempt income.

You must provide more than half of the support for your parent during the year. Support includes amounts spent to provide food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities. Even if you do not pay more than half your parent’s total support for the year, you may still be able to claim your parent as a dependent if you pay more than 10 percent of your parent’s support for the year, and, with others, collectively contribute to more than half of your parent's support. To receive the exemption, all those supporting your parent must agree on and sign the applicable Multiple Support Declaration (Form 2021).
If you cannot claim your parent as a dependent because he or she filed a joint tax return or has a gross income above $3,100 but you have been paying your parent’s medical expenses, you may be able to deduct those expenses from your taxes.