As each of us grows older and moves into retirement, we will not only earn less income, we may also find that our retirement savings are not going to stretch as far as we thought they might. Therefore, it is important to be frugal when it comes to expenses in retirement, including paying income tax.
There are certain tax breaks that many senior citizens can take advantage of, but only if they know about them. Read on to learn about some of these tax breaks that may be of benefit to you.
Standard versus Itemized Deductions
When determining whether it is better for them to take the standard or itemized deductions, retirees need to remember that their standard deduction may increase depending on their situation.
The standard deduction beginning January 1, 2015, is $6,300 for individuals and $12,600 for those married filing jointly. For those filing as head of household, the standard deduction is $9,250.
For those who are blind or age 65 or older and married, they can take an additional standard deduction of $1,250. For those who are blind or age 65 or older and unmarried, their additional standard deduction is $1,550.
Some of the following deductions can only be taken by taxpayers who itemize.
Growing older typically means in many cases declining health. As medical expenses are only deductible when they exceed a set percent of a taxpayer’s adjusted gross income (AGI) many taxpayers will be able to when they retire take a deduction for medical expenses for the first time in their lives.
For years beginning after December 31, 2012, medical expenses are only deductible when they exceed 10 percent of a taxpayer’s AGI. For taxpayers age 65 or older, medical expenses are deductible when they exceed 7.5 percent of the taxpayer’s AGI. However, this is a temporary exemption that runs from January 1, 2013, until December 31, 2016.
Medical expenses include fees paid to see doctors, dentists, psychiatrists, chiropractors, and other non-traditional medical practitioners, including acupuncturists and naturopaths. Deductible medical expenses also include costs for prescription medications and medical insurance premiums.
Medical expenses do not include payments for over-the-counter, non-prescription medications.
Medical expenses are only deductible for taxpayers who itemize their deductions.
Retirees are still permitted to make contributions to retirement accounts. For individuals who are 50 or older, they may contribution up to $6,500 in total to Individual Retirement Accounts (IRAs) or Roth IRAs. Contributions to IRAs are not taxable as income in the tax year in which they are contributed but rather when they are withdrawn. Contributions to Roth IRAs are taxed as income in the tax year in which they are contributed, but withdrawal of the principle and any interest is not taxable when they are withdrawn from the Roth IRA.
Profits from Sale of a Home
It is not unusual for retirees to move or downsize. The profits from the sale of a home may not be taxable under certain conditions and limitations.
If a taxpayer has used and owned his home for at least two of the previous five years, then the taxpayer can exclude up to $250,000 in profit from his income if he is an individual or up to $500,000 in profit from his income if he is married filing jointly.
What should I do if I have questions about my taxes as a senior citizen?
You should speak with a tax attorney. A tax attorney can not only provide answers to your tax questions but also help you file your income tax return to legally pay the least amount of tax possible.
You can speak with a tax attorney by calling the phone number located at the top of this web site or completing the form below. The first consultation is free of charge and all conversations with a tax attorney are free of charge, so you have every reason to make the call to get help today.
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Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.