Every new retiree should ensure that they take full advantage of all tax breaks they get, especially if they are on a fixed income. Don’t forget that you need to confirm your retirement savings cover your whole life. Holding on to money when retired is pretty hard, making it essential for retirees to keep tabs on their tax situation.
Sadly, many seniors miss practical tax-saving opportunities, and any are ignorant of such incredible opportunities. As a result, this article will explore common tax breaks that retirees overlook.
Medicare Premium Deductions
For people that became self-employed after retirement, it is possible to deduct premiums paid for Medicare Part B and Part D, alongside any cost of supplemental Medicare policies.
You need not itemize to get this deduction, and the 7.5 AGI test that applies to medical expenses that were itemized does not apply. Bear in mind, however, that one cannot claim this deduction if one qualifies for the employer-subsidized health plan offered either by your employer or your partner’s employer.
Tax Credit for Low-Income Seniors
Many seniors miss the special tax credit given to low income or disabled elderly. It is not surprising as Form 1040 (the main tax form) or schedule does not mention it. It almost seems like Uncle Sam doesn't want people to know. Now that you are aware, make sure not to overlook this break if you qualify.
You need to qualify before you can claim such credit, and your income must pass two tests. One is qualified provided the following is confirmed by the end of the tax year:
You were 65 years and above
You were below 65 but had to retire due to total and permanent disability, which qualified you for taxable disability income.
The first income test revolves around your adjusted gross income (AGI). For people that file their tax with filing status as a single, qualifying widow, head of household, etc., the filing status needs to be below $17,500. For a married couple who files a joint tax return, but only one partner qualifies, the AGI might not get to $20,000. If both spouses qualify, married couples need to have their AGI below $25,000. Also, your AGI needs to be below $12,500 for married couples filing separately and living apart from the partner for the entire tax year.
The second income test is a factor of the sum of the non-taxable annuity, pension, social security and disability income. This combined income should be below $5000 for single, qualifying widows and heads of households. This income limit also binds joint filers provided one spouse qualifies for the credit with a total income limit of $7500. Married people going through the separate filing route and were not living together have a limit of $3,750.
If you qualify for the credit, it can remove $750 from your tax bill for single or $1,125 for married. Deducing the credit can be complicated; as a result, Uncle Sam will calculate it for you or you can contact a tax professional.
Vacation Home Enjoy Tax-Free Profit
For you to qualify for tax-free profit when selling a home, it should be your primary residence, and it must be where you lived for two of the five years that preceded its sale. However, it is also possible to get tax-free profit when you sell a former vacation house.
Assuming you sold a family homestead, and it gave you up to $250,000 profit tax-free (double for married filing jointly). After this, you pack your vacation home, which has been yours for 25 years. Provided this house is your principal residence for at least two years, some sales profit will not be taxed.
FOR MORE INFORMATION ON HOW KAREN MUNOZ, EA CAN BEST HELP YOU WITH YOUR TAX FILING NEEDS, PLEASE CLICK THE BLUE TAB ON THIS PAGE.
THANKS FOR VISITING.
Karen Munoz, EA