Can I take my mother as a dependent if she’s on Social Security?

Q. My mother has recently begun collecting Social Security. Until now, I’ve listed her as a dependent on my tax return. If I continue, will it affect her Social Security benefit?

STEVE CHIU

NEW YORK CITY

A. No. However, for your mother to qualify as your dependent, you must pay more than 50% of her living expenses. If Social Security payments now cover at least half of her costs, you no longer get the tax break. If you continue taking the deduction and the Internal Revenue Service questions you, you would need to provide detailed records of her expenses and proof that you covered the required minimum.

Q. I know that dollar-cost averaging— investing the same amount of money each pay period—is a good financial strategy. Unfortunately, I can’t invest weekly or even monthly because most of my income is from sales commissions, paid every six months. With my situation, it’s easier to invest a large sum twice a year, then withdraw a fixed amount each month for living expenses. Is there anything wrong with this approach?

KLAUS STEINKE

OMAHA

A. That depends on what you invest in. Risking money you need for living expenses isn’t wise, so you shouldn’t plunk six months’ worth of income into a stock mutual fund or other volatile investment. If the market goes south, you could find yourself short of cash and forced to sell at a bad time.

A better idea is to deposit that semiannual check in a money-market fund and make biweekly or monthly withdrawals for expenses. You can then dollar-cost average by regularly setting aside part of each withdrawal for investing in your mutual fund.

Q. Kids are not taxed on the first $700 of their investment income, so I’m thinking of selling my son’s stock when it gains about $675, then buying it again. The repurchased shares would have a higher cost basis, so I could do the same thing next year. Tax savings would more than cover the trading commissions, but is this tactic legal?

JEFFREY LUBITZ

Potomac Falls, Va.

A. Yes—but there’s a caveat. If your son earns more than $450 a year, he’ll owe taxes on any investment income above $250. In that case, even though the strategy you propose would still be legal, the tax savings might not be worth the trading costs.

Q. I earn airline miles for charges to my credit card. I could get a free plane ticket each year if I could just find a lender who would let me charge my mortgage payments. Is there one?

JEFF KINGSTAD

WINCHESTER, WIS.

A. Jim Milligan, president of Alltel Information Services, a consulting firm specializing in residential lending, says he doesn’t know of one. Rather than pay a fee to a credit-card company, most lenders feel they can compete better by lowering their loan rates. When American Airlines tried to promote its frequent-flier program by offering miles for mortgage payments, lenders weren’t too interested.

Q. I pay property tax on a home that I own in another country. Though the assessment is paid to a foreign government, can I deduct it on my tax return as I would property tax on a home I owned in the U.S.?

MEHMET MUFTUOGLU

Plano, Texas

A. The foreign location is not a problem. The tax is deductible on your U.S. tax return.

REPORTER ASSOCIATE: Jan Alexander

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