THUMBS UP: Give More and Gain Dependency Exemption

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Wouldn't it be nice if you could gaina dependency exemption for helpingparents or other elderly family memberswith their living expenses? You can, ifyou provide at least 50% of theirincome each year. To qualify, your relative'sannual gross income also mustnot exceed the personal exemptionamount ($3300 for 2006). Gross incomedoes not include deferred income fromCDs, savings bonds, and stock growth,nor does it include tax-free income frommunicipal bonds or funds. SocialSecurity benefits do not count as grossincome, although it counts toward halfsupport.Although half of a person'syearly income seems like a lot at firstglance, suggests that you may be closer to thesupport mark than you think. Supposeyou give your widowed GrandpaCharlie $1000 every month to help withrent. He lives on $2250 in yearly taxableearnings and $12,000 of Social Security.Every year, Grandpa Charlie stays withyou for a total of 6 weeks in the summerand during holidays. Based on the$12,000 you give him vs his $14,250income, you are $2250 short. Now factorin $2000, the fair market value offood and accommodations duringGrandpa Charlie's visits, and you areonly $251 away from gaining a dependent.Give Grandpa Charlie a gift for thedifference, and you now have a $3200dependency exemption.