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My 21 year old son will graduate from college next May. He is in need of significant dental work(orthodontia and then implants) that can't really be started until after college when he will be in one place for awhile. This is not the result of an accident or injury. It needed to wait until he was done growing as well. He has already used up orthodontic benefits from the dental insurance that currently covers him.

My husband and I have told him we will pay for this. Unless there's a better way, we will pay the drs bills directly. Because of the dollar amount of his college bills for the first half of '06, it would probably be easy to make the support case for him being our dependent for '06. I need to re-read the pretax account definition of dependent to see if we can at least cover some of the bills with that.

Are there any gift tax issues if we pay the bills directly ? Should I run the scenario of married filing separately with me(who makes significantly less and can somewhat control my income) taking him as a dependent to see about the misc medical deduction ? Anything else I should be looking at ? I suspect(we don't have the final plan yet) we are looking at $25-$30K, possibly spread over 3 or 4 years.

thanks
rad
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Are there any gift tax issues if we pay the bills directly ?

No.

Should I run the scenario of married filing separately with me(who makes significantly less and can somewhat control my income) taking him as a dependent to see about the misc medical deduction ?

I would. One spouse with significant medical expenses is one "classic" scenario in which MFS may be a good idea.

Phil
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You do need to carefully read the medical spending account rules. If he works half of '06 it will be difficult to claim him as a dependent on taxes. The dental work is not planned until after he has graduated. Once he has started a full time job, he will no longer be under your medical/dental.

If his first job out of college does not have medical coverage, he would be eligible for medical/dental under cobra.

Debra
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If he works half of '06 it will be difficult to claim him as a dependent on taxes.

Debra refers to the gross income test for dependency. This test doesn't apply if he's under 24 and was a full-time student in at least five calendar months of the year, so for most grads it can be ignored in the year of graduation. Even if he doesn't qualify as a dependent because of the gross income test, medical expenses paid for him would still be deductible on the parent's return if the parent provided more than half the child's support for the year. Details are in IRS Publication 502.

Phil
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This test doesn't apply if he's under 24 and was a full-time student in at least five calendar months of the year, so for most grads it can be ignored in the year of graduation.

I went through this a couple of years ago with my daughter and didn't take her as a dependent because of timing - her last semester bill had to be paid the prior Dec and she had a significant stipend along with a good job once she finished. We really didn't meet the support tests.

In this case, he's at a very expensive college and no slamdunk job prospects - at least at the moment so unless something changes significantly, I think he'll be our dependent for 06(we usually give the kids whatever tax money they paid until they are no longer a dependent). Dental insurance is irrelevant since the orthodontic benefit from this one was used long ago(there's a lifetime limit).

I'm starting to look at the medical insurance available to him and there are some reasonable possibilities I'll point out to him. On the flex account, I need to check the paperwork but IIRC, it can be used for a grace period after he graduates - maybe a quarter. If we plan the timing right, I could be billed and pay whatever works from that account(we usually fall around the 31% tax bracket with about 5% state tax). (Orthodontics will bill pretty much however you want - up front or monthly.)

I really appreciate the posts - I know this is a weird one.

rad
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