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Tax benefits of paying relative's doctor bills

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in Small Business Tax

Q. In the past, you’ve said that gifts are exempt from gift tax if they’re used to pay someone else’s medical expenses. Does this apply to the expenses of any relative? Also, can I deduct the gifts as medical expenses? E.L., San Luis Obispo, Calif.

A. Regarding your first question, yes, the medical expenses you pay directly to health care providers on behalf of a relative (or anyone else) are exempt from gift tax above and beyond the tax shelter afforded by the annual gift-tax exclusion ($12,000 per recipient for 2006). Regarding your second question, to claim a medical deduction for these amounts, a relative must qualify as your dependent. That generally means you must provide more than half of the relative’s support, but it doesn’t matter how much he or she earns.

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