QUESTION: My brother and I have been contributing substantially to my father's support for the last few years. The only income he has is social security and about $500 a year in interest on his savings. Are there any tax benefits to help offset this expense?
ANSWER: Probably so. Since your father can qualify as your dependent. (Social security benefits are not taxable and shouldn't be counted.)
You and your brother must each contribute at least 10 per cent of your father's total support; and together you must contribute more than half of that support.
("Total support" is the total amount of money from all sources spent by or for your father on essential living expenses - food, lodging, clothing, medical expenses.)
If you meet these tests, then either you or your brother claim your father as a dependent on your tax return. You may not "split" a dependent between two tax returns, but you may alternate each year.
Whichever one of you takes the exemption in a given year must attach IRS Form 2120, signed by the other brother, to his return. This is simply a statement that the signer agrees not to claim the exemption himself.
If you were eligible to claim your father as a dependent in prior years and fail to do so, you may now file an amendment to your tax return, using IRS Form 1040X.The time limit for such an amendment is three years, so you can still correct your 1975, 1976, and 1977 returns.
There may be a way to save more tax money if you and your brother have cash or investments that you can tie up for a period of years. You may be able to establish a reversionary trust, with the income to go to your father during his life-time and the principal to revert to you and your brother at his death.
(Caution: The field of trusts is a highly complex and technical one; you should consult an ettorney for guidance.The suggestion given here relates only to the tax implications of such a financial arrangement; it is obviously not a substitute for competent legal counsel.)
There is a substantial difference between "before-tax" and "after-tax" dollars. If you're in, say, the 28 per cent federal income tax bracket (and disregarding state tax), it taxes about $139 of "before-tax" income to you to provide $100 for your father.
On the other hand, if you can arrange for the income to be taxable to your father, and since he probably will have no tax liability, then $100 of income will give him $100 in support money.
Q: I understand that over 500 corporations offer dividend reinvestment (as well as cash purchase) inducements to their stockholders which provide considerable savings in brokerage fees. But there appears to be wide variation in the plans offerred. It would be of great value to an investor if he had access to some kind of table of "ingredients" for each plan to make comparisons and evaluations. Any ideas?
A: You're right - many corporations offer investment/reinvestment programs to shareholders. In addition, some of the larger banks have similar plans for a selected group of stocks. And several of the major brokerage houses have share accumulation acounts for any listed stock.
Each of these techniques offers savings in brokerage fees because shares are purchased by the sponsor in large blocks for all participating investors.
But frankly I don't know why you would want to make such a comparison among the different stocks. Any small variation in brokerage cost ahould certainly not be a factor in selecting a stock for investment. You'd better have a stronger reason than that for preferring one stock over another.