Here are some of the most important tax deductions for seniors and retirees.
- Higher standard deduction.
Any taxpayer that is 65 and older by December 31 of the tax year is entitled to a higher standard deduction. Taxpayers may take the higher standard deduction if a spouse is age 65 or older and together they file a joint return. Also, the higher standard deduction may be taken if the taxpayer files a separate return and can claim an exemption for a spouse because the spouse had no gross income and can’t be claimed as a dependent by another taxpayer.
- Contributions to retirement plans.
Taxpayers that are over the age of fifty (50 )have higher contribution limits for Traditional IRAs, Roth IRAs, and 401(k)s. Another option is a Roth IRA where taxpayers will pay taxes on the income contributed now, but withdrawals upon retirement will be tax-free. While Traditional and Roth IRA contribution limits are $5,500 for taxpayers under the age of fifty (50), persons age fifty (50) and over may make additional contributions of $1,000, for a total contribution limit of $6,500. Taxpayers may have both a Roth IRA and a Traditional IRA in the same tax year, but can’t exceed the contribution limit with combined contributions to both accounts.
- Sale of a Personal Residence.
Provided that a taxpayer has lived in a home for at least two out of the immediate past five years before it is sold, any profit is not taxable up to $250,000 for single taxpayers and $500,000 for married taxpayers filing jointly.
- Business expenses.
For seniors and retirees still operating a business, all reasonable necessary expenses incurred in doing business, may be deducted. This may include business travel and business equipment expenses.
- Medical and dental expenses.
Medical and dental expenses are typically some of the largest expenses for seniors and retirees, some of which are deductible. These include premiums for health insurance (Medicare) and long-term care, therapy, nursing home care, prescription medications, and most other out-of-pocket medical expenses.
The regulations for deducting medical and dental expenses were amended in 2013. Under current rules, only medical and dental expenses in excess of 10% of a taxpayer’s adjusted gross income (AGI) are deductible, in contrast to the prior threshold of 7.5%. Congress exempted taxpayers age sixty-five (65) and older from the 10% threshold increase until 2017. Thus, anyone age sixty-five (65) or older can use the former 7.5% threshold for deducting such expenses for any tax year ending before January 1, 2017, as long as the taxpayer or his or her spouse was age sixty-five (65) during or before the tax year.
- Investment expenses.
According to the Internal Revenue Code, dividends and capital gains are taxed at lower rates than ordinary income, ranging from 0% to 20% depending on a taxpayer’s overall income tax bracket. Also, investment income is not subject to Social Security or Medicare taxes like employment income.
Also, miscellaneous expenses incurred are deductible to the extent that they and other itemized personal deductions exceed 2% of adjusted gross income (AGI). These types of expenses would include attorney and accounting fees, subscriptions to investment newsletters, fees paid to a financial planner, broker, bank, trustee, or similar agent to collect investment income.
- Charitable contributions.Charitable contributions are deductible as itemized deductions subject to special limitations. Cash contributions of up to 50% of AGI are deductible each year as an itemized deduction. Taxpayers may deduct the fair market value of property donated to a qualified organization.
If you are retired and wish to take advantage of all of the tax benefits for those over fifty (50), call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation, call 212-490-0704.
