My mother lives with me & I am her total care giver 24/7, for which she pays me well, (at her instance ) as an alternative to a nursing home. I take care of all expenses with the exception of her medical needs, for which she has insurance.
She is legally blind, has limited hearing & uses a walker. Originally her payment to me was at the "gifting limit" but as she now requires more help she has raised the amount (again at her instance). Do I have to declare it as income & can I deduct the gifting allowance from the reported amount? And can she declare it on her tax return as an expense?
Many people do not understand how the gift tax works. If your mother gifts more than the annual limit, she needs to report the excess gifts with her return, (Form 709) but there is no tax due at that time unless she has already gifted more than the estate exclusion, which for 2013 was $5,250,000. If, at her death, her total excess gifts, plus her remaining estate, exceeds the current estate exclusion, there would be estate taxes due. Most estates fall far under this amount. The irs keeps track of your mom's lifetime gifts reported on form 709. You can find statistics on gift tax returns on the irs website, and they usually show that more than 90% of reported gifts are not subject to tax. You can find information about how the irs calculates and keep track of gifts in Publication 559 on the website.
Of course, you also need to consider the future impact of these gifts on your mom's eligibility for Medicaid. If you think that there is any chance that your mom will need Medicaid in the future, especially within the next five years following a gift, you should talk to an attorney about writing a contract so that the payments are for a service and not a gift. Unfortunately, this would make them income to you.
I doubt that your care of her can be considered a Medical Expense.... Line 1 on Schedule A. If she is legally blind, the Standard Deduction is quite generous, on HER Return, particularly if she has a spouse who is also legally blind, and over 65..
Forget about the "Gift Tax". It's a tax that she should not have to pay. Her check to you is not a "gift", and could be questioned by the IRS.
The $5,250,000 is not applicable until AFTER her death. She probably will not meet this exclusion. (It will be higher in 2014).
What is the purpose of your question? If it's Dependency, then you can claim her on your Return if you supply over 50% of her support. Then you can claim her as a Dependent. This is the only allowance that I can see that is both legal and beneficial to you both. I am not a Tax Accountant.
Mom's payments to you are either gifts, room and board or payment for services. Gifts, sales, rent and wages each have laws to govern how they are treated for tax purposes.
I stand by my earlier statement that gift tax does not need to be paid until total lifetime taxable gifts exceed $5,250,000 or unless, after death, the total lifetime taxable gifts and estate value exceed that amount. Please, people, look this stuff up on the irs website. This is explained in Publication 559. Tax laws and limits change frequently.
Thanks again.
If your mom is exceeding the gifting limit, then she should be withholding Social Security from your check, and you should be reporting it. You say, "I take care of all expenses," which, I assume, is out of the money mom pays you. Have HER pay those expenses instead of passing that money on to YOU to pay them. They aren't deductible to you, and you would be taxed on the money she gives you to cover them.
You're in murky waters. If you ever anticipate your mom needing Medicaid -- in other words, if there's any question that she might not be able to pay for a nursing home out of her own funds, you really need the advice of an elder law attorney. Otherwise, all the money she's paying you would be considered a gift and would cause Medicaid to make you, in effect, pay that money back.
If you deducted the gift allowance from the money she's paying you and were ever audited, you can be sure you would have to pay taxes and penalty on that deduction. I believe that might even be considered fraud. ??
Talk to a CPA and an elder law attorney. It's very important that you have your i's dotted and t's crossed when it comes to your mom paying you for her care. Lots of ramifications. It's a very specialized area. And tricky to get it right.