From: The Internet

Dear TaxMama,

According to the U.S. Census Bureau, 2000, 5.6 million or 6.2 percent of American children lived in a household maintained by a grandparent. About 15% of grandparents provide some level of child care for their grandchildren, up from 8% in 1998.

About half the grandparents help pay for their grand- children's education, while 45% say they assist with living expenses. The average grandparent spends about $500 a year on their grandchildren, but two out of five spend between $500 and $2,500.

In my case, my son,(aged 22) died in July 2003 of leukemia leaving behind a grief-stricken wife, and two babies: ages 2 yrs and 15 months old.

In addition, my daughter and her husband , due to the state of the economy, unemployment rate of 5.4% or 8 million people and the jobless rate for blacks (10.3%) (2004 Bureau of Labor Statistics of the U.S. Department of Labor)--have been simultaneously experiencing layoffs and unemployment since 2002 and they have a 13 month old child.

Thus, since 2003, I have found myself in the role of caregiver for my children and grandchildren to insure that at least their basic needs are met (food and shelter).

When totalling up the living expenses I have shelled out for just 2004, it totals to $13,000! How can I claim this on my personal income taxes?

thanks in advance,

Dana

 

Dear Dana,

WOW! Was that a question or research article, or political speech?

What an amazing amount of information!

And with all that, you didn't give me any information that would help me give you guidance.

So, first of all, accept my deepest sympathy for your family's tragedies. Any one of those things is bad enough for one family - but to have all those things happen....well....that's a real test of faith.

You're coming through it with great spirit, though.

Now, let me see if I can give you any guidance at all through this. These are things that ARE important when it comes to giving you guidance:

1) You didn't say if any of these family members were living in your home - just that you were providing funds for food and shelter.

2) You didn't say anything about whether or not they were earning money in 2004 - and if they will be filing their own income tax returns.

Bottom line? If your daughter-in-law worked in 2004, and earned more than the amount of her personal exemption, about $3,100, she'll be filing a tax return. Since her income probably won't be all that high, it may be worthwhile for her to claim at least one of her children, so she can be head of household and get the Earned Income Credit.

Now, if your daughter-in-law and grandchildren were living with you, you might also be able to claim a head of household status, and claim one of the children as dependents.

The only problem is, the government doesn't generally allow two heads of household at the same address.

So, you may want to sit down with a good local tax pro to play with the numbers and see how you split the dependents and the various expenses so each of you get the best advantage.

With dependents, you'll have claims to the Child Tax Credit, Child Care Credit (if there were pre-school costs), medical expenses and/or medical insurance costs.

As to your daughter and her family...I don't get the impression that they lived with you. So, I don't think there is anything you can get from that direction as far as tax relief goes.

But, from a personal point of view, aren't you feeling just great that you are in a position to help them out at this time of their need? You're a wonderful parent, strong and stalwart, when they need you.

No doubt, the love you've lavished on them will be rewarded over the years in the special relationship you'll have with your grandchildren.

Although my grandfather died when I was 8 years old, whenever I need comfort, I send myself back to the times I spent, sitting in his lap, listening to his stories. He and my dad were the best storytellers, ever.

Hugs

Eva Rosenberg, MBA, EA