Don’t Miss These Important Tax Deductions
If you are retired or nearing retirement, these deductions can make a huge difference in how much money you will have available to you.
Taking advantage of legal and available deductions is smart retirement planning. Because taxes can be very complicated, it’s a good idea to seek out the help of licensed professionals before making any final decisions. The tips listed below are intended only for information on the options that are available.
Allowable medical and dental expenses. Medical and dental expenses can be a large expense, especially as people age. Some of these expenses are deductible, providing you follow the IRS guidelines are often one of the largest expenses for retired people. Fortunately, some of these expenses are deductible. Deductions can include health insurance premiums, included in these deductions can be Medicare premiums (for those on the program). Other expenses can be prescription drug expense, home health care and other expenses not covered by insurance. The guidelines for deductions are based on how you file your taxes, if you itemize your deductions, medical and dental expenses are deductible from your income taxes on Schedule A of your tax return, but they are limited based on your Adjusted Gross Income (AGI). Currently, only medical expenses in excess of 10% of a taxpayers AGI is deductible.
IRA and SEP IRA contributions. Even if you are retired, that has no effect on continued contributions to a tax qualified retirement plan. The amount of your allowable deduction increases for many people age 50 and older, these are catch up deductions. Those who are self-employed may also establish SEP-IRAs, and solo 401(k) plans that have higher contribution limits for those over 55.
Selling your home and relocating to a smaller home can allow you the use of a special tax event. Providing you have lived in your home at least two years (2 out of last 5), you are allowed to make a tax free profit on the sale of your home. If you are single, up to $250,000 and for a couple, $500,000 of your profits are not taxable.
Investment expenses. If you have investment accounts, a wide array of deductions may be available to you. In addition, dividend income is taxed at a lower rate than ordinary income, from 5% to 20%. Fees paid for advice and expenses related to investments may also be deducted, these include attorney and accounting fees, cost of investment services, financial planning fees, bank and trustee fees, safe deposit fees (safekeeping of assets). The amount of the total deductions is only available for expenses in excess of 2% of your AGI.
Charitable contributions. Many retirees use their time to help others and to give back to their community. The IRS allows for charitable deductions based on guidelines. Charitable contributions in cash can be deductible as itemized deductions but with limitations. Cash contributions are allowed as a deduction of up to 50% of your AGI as an itemized deduction. Charitable contributions in other forms such as real estate are based on the fair market value of the asset. Obtaining an appraisal is in most cases strongly suggested. Depending on the original cost of the asset, adjustments in allowable deductions may need to be made. Assets other than real estate such as a car can be limited to the actual value the charity was able to obtain through its sale.
