Tax season tends to bring its share of stress and anxiety for everyone. If you're handling a parent’s tax return along with your own, it can feel like an extra layer of responsibility.
To help simplify the process, we’ve created a comprehensive guide to walk you through filing a tax return for a parent.
Key Takeaways
Before gathering all documents, you need to determine whether your parent will need to file a return or if you can claim them as a dependent.
If your parent has a gross monthly income of $5,050 or below, you are able to claim them as a dependent.
Store your parent’s tax documents on a secure platform like Trustworthy for easy access.
1. Determine if Your Parent Needs to File a Tax Return
Before you begin filing a tax return, you should check if your parent even needs to file taxes. This will largely depend on how much money they are earning.
If the only income they receive is from Social Security benefits, they likely will not need to file a tax return.
However, if your parent receives income from other sources, such as interest, dividends, or Social Security benefits, a portion of this amount may also be taxable.
This amount is determined by the Internal Revenue Service (IRS) and changes yearly, so it’s a good idea to check it regularly to avoid penalties for non-submission.
2. Gather Your Parent’s Essential Tax Documents
In order to file your parent's tax returns correctly, you must know everything about their finances and where they get their money from. This means gathering all the essential documents needed for a tax return.
Documents you must include:
Your parent's Social Security number.
Copy of previous year’s tax return.
Income and earning statements like 1099-R for pension income, SSA-1099 for Social Security benefits, W-2 form for wages, and 1099-DIV form for interest and dividend statements.
Your parent's bank account numbers for the refund.
You’ve gone through the hassle of gathering all the essential documents. Now, you need to store them somewhere that is secure but still easily accessible. Use a secure online platform like Trustworthy. Trustworthy’s Family Operating System® can be used to store your important documents. You can also use the collaboration features to share them with the relevant people.
3. Identify Available Tax Deductions and Credits for Seniors
Before filing, check for any common tax breaks and credits for seniors because this can help save your parent some money.
For example, the government has a special tax credit known as the Credit for the Elderly or Disabled. This tax break is for people over the age of 65 who have a gross income less than $17,500, nontaxable income from Social Security, and a pension that is less than $5,000. If your parent qualifies for this tax break, they could save anywhere between $3,750 and $7,500.
Other possible tax deductions your parent may qualify for are sizable medical and dental costs claimed as itemized deductions. Medical costs include things like hospital care, prescription drugs, equipment, and doctor’s visits. In order to qualify, these costs must exceed 7.5% of their gross income.
Another tax credit you may qualify for is the Child and Dependent Care Credit. So, if you pay for the care of your parent and they meet the other criteria, you can claim anywhere from 20% to 35% of your care expenses with a maximum of $3,000 per individual.
Qualifications for the Child and Dependent Care Credit:
A qualifying individual will be a parent who is mentally and physically unable to care for themselves.
You need to have earned an income during this period of care with work-related expenses.
You must be able to provide the identity of the care provider used. This includes the name, address, and some kind of identification number of the care provider you used.
Finally, Don Ford, a managing partner at Ford + Berger, a Texas law firm, explains: “Seniors can give away $18,000 per year to as many of their family members as they wish without any tax consequences. Seniors can also qualify for exemptions or reductions on the property taxes associated with their homes.”
A key part of claiming deductions is keeping copies of your receipts for all medical costs and other relevant expenses. Store these very important documents with Trustworthy. You can use the collaboration features to create a network of the people you trust and take advantage of the AI-powered document filing features to keep your documents organized for easy access.
4. Establish if You Can Claim Your Parent as a Dependent
Avoid the headache of filing a tax return for your parent by determining if you can claim them as your dependent and receive additional tax benefits for yourself in the process.
Judy Brown, a CPA and senior financial advisor in Ellicott City, Maryland, advises: “If your parent meets the requirement, it makes more sense to claim them as a dependent on your return as they’re not getting any real tax benefits with such a low income, and you’re giving up potential tax benefits.”
For your parent to qualify as a dependent, there are two criteria the IRS will take into consideration: income limitation and support requirement.
Income limitation requirements:
Your parent must not have earned a gross income that exceeds the income test limit for the year, which is currently $5,050.
Social Security benefits may be counted as income if your parent receives money from interest or dividends.
Support requirement:
You need to have provided more than half of your parent’s support during the relevant tax year (rent for room, food costs, utilities, and general living expenses).
The amount of support you provided must exceed your parent’s income by at least $1.
Other qualifying requirements:
Your parent must be a U.S. citizen or resident alien, or a citizen of Mexico or Canada.
Your parent must be single (married parents don’t count).
5. Choose the Right Filing Status for Your Parent’s Return
Choosing the correct filing status is so important when filing tax returns because it can determine how tax is owed, if you’re entitled to a refund, and if you can claim certain tax credits.
There are five tax filing statuses available: single (unmarried), married filing jointly, married filing separately, head of household with qualifying person, and qualifying widow(er) with dependent child.
Choosing the right one will depend on your parent’s circumstances. For example, if you’re an unmarried person with a parent as a dependent, your filing status is head of household.
It’s no secret that choosing the correct filing status can be tricky, but the IRS does provide some assistance by offering a “What is my filing status?” tool, where you can input your information, and it will determine your status.
6. How to Report Your Parent’s Social Security Income
If your parent receives Social Security income, this needs to be reported on their tax return using the forms SSA-1099 for Social Security benefits and 1099-R for pension income.
Keep track of your parent’s financial information and the numerous forms you are required to fill in by storing them with Trustworthy. The advanced security features keep your information safe while making it easy to share the documents with the relevant people.
7. Handle Investment and Retirement Income on the Tax Return
Retirement income can influence how much tax you end up paying. If your parent receives additional income from investments and other retirement accounts like IRAs and retirement plans, this needs to be included in their tax return because income tax will be paid on these withdrawals. However, if your parent has had a Roth IRA for at least 5 years, the money withdrawn will not be taxed.
Whether you are retired or not, investments like stocks, mutual funds, or bonds are fully taxed.
Don’t forget about money earned from investments, also known as capital gains, which will need to be reported under the “schedule capital gains” section of the standard tax return form.
8. How to File Taxes if Your Parent Has Passed Away
Even if your parent passed away, you still need to file their taxes, and doing so is not as complicated as one may think.
To start, fill out Form 1040, which is a final tax return for a deceased person. Next, gather all relevant financial documents for income, expenses, and other deductions. You can use Trustworthy to organize and store this paperwork securely.
When filling out the form, make sure that the date of death is provided. If you expect a refund, you will need to fill in Form 1310 to claim this money.
You will then need to file the form on behalf of the deceased before the tax return is ready to be filed.
9. Filing the Tax Return: Paper vs. E-filing for a Parent
When it comes to filing your parent’s tax return, you have two options: paper or e-filing. Both of these options have their benefits and drawbacks.
Benefits of paper filing tax returns:
Fewer potential online risks.
Easy to use as there is no use of technology required.
Drawbacks of paper filing tax returns
You have less time to prepare because you’ve got to allow adequate time for mail delivery times.
Longer processing times. Paper filing can take weeks to process and up to six weeks to receive refunds.
Benefits of e-filing tax returns:
More accuracy as online e-filing does your tax calculations for you.
Faster process. Some electronically filed returns can be processed within two days.
Receive a confirmation of a successfully submitted tax return.
Drawbacks of e-filing tax returns:
Limitations for attachments like PDF statements.
Data loss due to system glitches.
At risk of cybercrime like unauthorized data access.
Keep track of your parent’s tax returns by storing all of the related documents on Trustworthy. By using Trustworthy, you can rest assured your information is secure and that you can easily access it whenever you need to.
Frequently Asked Questions
What should I do if my parent is missing tax documents, such as W-2s or 1099 forms?
You can get additional copies of these forms by contacting their employer, and if that isn’t successful, you can contact the IRS directly for assistance and may receive substitute forms.
Can I be held responsible for any tax debt my parent owes if I am filing on their behalf?
If you manage your elderly parent’s finances, you may be liable to pay any outstanding debts of that person.
Is it possible to request an extension for filing my parent’s tax return if I need more time to gather information?
Filing a tax return for someone may take a little longer if you’re battling to gather all the needed information and documents, especially from elderly persons. You request an extension for the filing date by filling out Form 4868 electronically.
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