Tax returns can be quite a task if you are not aware of what all deductions you can include and how to itemize them. But the Internal Revenue Service website contains all the information regarding any deductions you can make to your taxable income and what all tax credits you can apply for. There are also several tax softwares to assist you with the same. Often people miss out on these important deductions and thus pay more tax that required.
There are several deductions available for seniors and retirees as well, so that they can make the most of their retirement savings and fixed incomes in their old age.
TAX DEDUCTIONS SENIORS AND RETIREES CAN AVAIL
There are seven tax deductions that elderly people and retired people can use to maximize their tax returns and save as much of their income as possible. These are as follows:
Medical Costs
If you spend any amount on health insurance premiums, nursing home care, medications etc., you can include this expenditure as a tax deduction. But there are certain criteria. For instance, if you are 65 years and above you can avail these medical costs as tax deductions as long as it exceeded 7.5 per cent of your annual income. For those who are below 65 years, the medical costs must exceed atleast 10 per cent of your annual income.
House Equity
Sometimes, you may want to move to smaller home when you retire and get older and so decide to sell your present home. If you have lived in your house for a long time, you will be able to gain quite a huge profit margin from the sale due to the equity you have acquired over time. But you may not have to pay any taxon that profit if you have stayed in the home for atleast two years before the sale. A profit up to $250,000 for single individuals and $500,000 for married couples cannot be taxed.
Individual Retirement Accounts
If you have invested in a Roth individual retirement account, you will only have to pay taxes now but when you retire you can withdraw the entire amount without having to pay any sort of taxes. This means that you will not have to pay any interest on your retirement savings.
Dividends And Investments
You should always contribute a part of your income in investments so that you can earn interest, dividends and capital gains. This is also taxed lower than your annual income, and can range from 0 to 20 per cent, depending on your total income.
You also do not have to pay any social security or Medicare taxes on these. You can also include any expenses you incurred on investment advice like attorney fees, safe deposit box fees, fees of financial planner, online fees or any personal computer you used for investment matters. These must exceed 2 per cent of your total income and make sure you itemize all your expenses.
Business Costs
If you do some freelance work after retiring or open a small business, you can always include any expenditure you make on tis business as deductions. As long as these items contribute towards the business in some way, you can get tax benefits from them. These expenses can include transportation costs, office supplies, home-office rents etc.
Charity Matters
If you have made any charitable contribution on retirement or when you get older, you can include these as itemized deductions. But these contributions must exceed atleast 50 per cent of your total annual income. If you contribute any goods towards a charity, you will have to include the fair market value of those goods.
Standard Deductions
You can avail standard deductions on your taxable income when you retire, if you are 65 years or older. You get an additional standard deduction of $1,250 if you are a married couple filing jointly and $1,550 if you are a single individual. Even if you are not 65, but your spouse is above 65 years, you can avail this deduction, as long as you are filing your tax return jointly.
For seniors and retires who are on a fixed income, it is very necessary that they note all the above deductions to make the most out of their savings. The more you save on taxes, the more you will be able to enjoy your golden retirement days and have a relaxed life when you are older.
Asharp Bookkeeper