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Our Parent's Taxes
by Sherri Mahoney-Battles
This tax season brought a record number of clients burdened with the added responsibility of dealing with their aging parent's tax situation. For most people dealing with aging parents it's a difficult task added onto the already long list doctors visits, housing issues and legal matters.
Unfortunately, the tax situation often gets pushed off until early April and what ensues is a mad scramble to collect the documents necessary for the filing. In many cases extensions become necessary when documents aren't available or easily accessible to someone other than the taxpayer.
My most challenging case this year involved an attorney dealing with her mother's tax filings. At filing time we identified two missing retirement forms and we spent weeks attempting to obtain these missing forms.
One institution would not provide the form needed without a stamped power-of-attorney which my client would not release since there was only one stamped original. We were forced to file the return without the form and relied on the previous year's form to obtain what was hopefully the correct amounts.
As a result of this and other experiences I have compiled a list of things that you can do to make the process a little less painful whether you are working on your own taxes or assuming the responsibility for your parent's tax filings.
Consult with your tax preparer as soon as you know that you will be the person responsible for facilitating your parent's tax preparation. A review of your parent's previous tax returns will allow your tax preparer to assemble a check list of documents necessary for the coming year's tax preparation and identify what returns will need to be filed.
Complete Change of Address Forms
If your parent(s) have moved in with you or into a nursing home, pick a designated mailing address for all important documents and notify all brokerages, financial institutions and tax agencies of the address change.
Consult with an estate attorney so that you can have a power-of-attorney on hand in the event your parent(s) are no longer able to sign their own documents. Prepare multiple stamped copies since some institutions will only recognize a stamped copy, and you will not want to mail them the only original.
Many of my older clients have dividends and investments with many institutions. It's not uncommon for some people to receive over thirty different dividend income statements each year. This creates a problem when you're waiting for all of these tax statements to come in each year, and the likelihood of missing forms increases. When possible, consolidate these funds under one or two select brokerages. It will make the document collection so much easier and more streamlined.
Assemble a team of professionals to assist with your parent's financial situation. This team may consist of an estate attorney, tax preparer, broker and other professionals. These professionals should work together as a team in order to minimize the stress on both yourself and your parents.
Don't File Too Early
Many financial institutions run late with their forms or issue amended forms that pose problems for people that file too early in the season. Some early filers find themselves amending returns to correct for late or corrected forms. You can avoid most of these problems if you wait until after February 15th to file your returns.
Schedule Your Tax Appointment Early
An early appointment with the tax professional responsible for your parent's filing is essential in the event there are forms missing since it may take some time to obtain the missing forms. This appointment will allow the preparer to start inputting data and pinpoint inconsistencies with the previous year's filing.
Prepare a List of Questions
As the person responsible for preparing your parent's tax returns it's your responsibility to ask questions. Could your parents be missing out on a medical deduction? Should they be making estimated payments? Are they having enough tax withheld from retirement distributions? Are there capital losses being carried forward that could be used to offset some potential future gains? Will payments to a nursing home be tax deductible?
Many older people miss out on tax deductions or tax savings opportunities because no one asks these questions.
Plan Ahead An essential component of any successful tax preparation culminates in a map for future years. A solid tax plan will identify investments that should be sold and distributions that need to be taken.
One of the most problematic issues faced by older taxpayers is stock sales. When a stock is sold gain is calculated based on the cost bases versus the selling price of the stock.
"Bringing Balance to Numbers"
Helping Cape Business Women Find Solutions to their Tax Issues for over 25 years
In some cases it is necessary to research the cost basis of a stock particularly those a taxpayer has owned for many years. If you identify the cost basis of the various stocks in a portfolio before they are sold, you can prepare for the resulting gains or losses.
As medical expenses increase or nursing home costs are incurred there may be additional record keeping that needs to be done in order to secure a tax deduction.
Proper tax planning is an essential piece of managing your parent's tax situation and will make the tax filing burden an easier one to grapple with in future years.
Above all it's important to be patient and sensitive when dealing with these issues. Many of my older clients get frustrated at the loss of control they have over their financial situation and many begin to feel increasingly overwhelmed by a computerized world that moves too quickly for them.
As caretakers we play an important role assisting our aging parents through this phase in their lives, and we should be diligent about protecting their resources and compassionate as we help them to retain their dignity.
Sherri Mahoney-Battles, of Taxing Matters, specializes in income tax preparation for small businesses and individuals.
As an Enrolled Agent, licensed by the IRS, Sherri has been representing clients for over twenty-five years in cases of audit, collections, and appeals and does extensive work with non-filers.