Tips For Seniors Filing Taxes
It’s never too early to begin gathering tax information for your taxes. If you’re a senior citizen, there may be tax breaks you never knew existed.
Did you know if you’re 65 years old, or older, if you don’t itemize your deductions, you are allowed to take a higher standard deduction? Further, if you’re blind you can add another deduction on top of the standard deduction. The Internal Revenue Service (IRS) defines ‘blind’ as you do not have corrected vision of at least 20/20, or you have an extreme limitation in your field of vision.
Many senior citizens decide to sell their home to move to a warmer client or downsize. Their home is probably worth much more than when they bought it creating quite a bit of equity. If you lived in your home for at least two of the five years prior to selling, you may not have to pay taxes on the profit you’ll gain.
Even though you may be retired, you can still make tax-deductible contributions to a retirement account such as an IRA, Roth IRA or 401K. If you’re over 50 years old, you will have a higher limit on what you can contribute to your retirement fund.
Senior citizens are noted for giving to charity, especially once they have retired. If cash is given to a charity, the amount given can only be deducted up to an amount equal to 50% of the Adjusted Gross Income (AGI). If property is donated (not cash), the fair market value of the property can be deducted. If you give property, such as a car or boat to a charitable organization that will re-sell that property, your deduction will be limited by the gross proceeds from the sale of that item.
Many seniors who retire decide to start a new business. Business expenses can be deducted if they’re reasonable and necessary. Business deductions can be money spent on travel, business equipment (phones, computers, printers) and the cost of an office. The office can be located in another building, or inside the senior’s home. Other expenses can be insurance, commuting costs, business clothes, gifts for customers, political donations, advertising and eating out to name a few.
Medical and dental expenses increase as we age. You may be able to deduct out-of-pocket expenses. To be able to take a deduction, your medical expenses must exceed 10% of your AGI. An example is: if your AGI is $100,000 and your medical expenses were $11,000, you can only deduct $1,000 (10%). If your expenses are under $10,000 you won’t be able to deduct anything.
Many seniors rely on a form of interest, dividends or capital gains on investments. These incomes are taxed at a lower rate, usually 15% and aren’t subject to taxes for Social Security or Medicare. Expenses related to this income that exceed 2% of the senior’s AGI, are generally able to be included as itemized deductions. These may include accountant, financial planner and attorney fees, investment newsletters or magazines, fees for online transactions, safe deposit box fees and equipment such as computers needed for investment purposes.
If you want to leave a legacy to your family, a consultation with a qualified and experienced tax attorney and estate planning may be worthwhile. That attorney can advise you on setting up trusts and other avenues to avoid placing tax burdens on your heirs.
There are deductions and tax tips that exist only for seniors. Seniors should consult with a tax lawyer or an estate planning lawyer to ensure they are saving money on their taxes.
For more information on filing your taxes, call