If you’re retired or are a senior, make certain that you know, as well as take advantage of the deductions that are available to decrease your income taxes every year. Here is some of the most critical tax deductions.
Dental and medical expenses
Dental and medical expenses often are amongst the largest costs for retired individuals. Thankfully, some of those costs are deductible. They include long-term care insurance premiums, health insurance premiums, nursing home care, prescription drugs, and most additional out-of-pocket costs for health care.
If you itemize all deductions, dental and medical costs are deductible from income taxes upon Schedule A of a tax return. But, they’re subject to a limitation. For several years, the limitation was 7.5 percent of the taxpayer’s AGI (adjusted gross income), which means that only these costs in excess of 7.5 percent of a taxpayer’s adjusted gross income were deductible. To discuss more on tax deductions for seniors, click here scottpartners.com.au.
The regulations for deducting dental and medical costs changed in the year 2013. Under present rules, only dental and medical costs in excess of 10 percent of a taxpayer’s adjusted gross income are deductible. Under the previous regulations, the threshold was 7.5 percent threshold so individuals could deduct more of those costs.
In developing the new regulations for deducting medical costs, Congress exempted those age 65 and up from the 10 percent threshold increase until the year 2017. Thereby, anybody age 65 or up may utilize the 7.5 percent threshold for deducting dental and medical costs for any tax year that ends before Jan. 1st, 2017, so long as the taxpayer or her or his spouse was age 65 before or during the tax year.
Selling your home
Retired individuals oftentimes sell their house to move into smaller homes or retirement communities. If you have lived in your house for a lengthy period of time, you potentially have significant equity and will make a large profit on your sale. Thankfully, you might not need to pay any tax on the profit. So long as you reside in your residence for at least 2 out of the 5 years before selling your property, the profit you earn on a sale – up to $500,000 for married taxpayers filing jointly and up to $250,000 for single taxpayers – isn’t taxable.
Contributions to a Retirement plan
Just because you’re semi-retired or retired does not mean that you cannot make tax-deductible contributions to a retirement plan like an IRA. The ones over 50 years of age have higher contribution limitations for 401(k)s, Roth IRAs, and traditional IRAs.
Or, you might prefer to contribute to Roth IRAs. You will pay taxes upon the income contributed now, yet the withdrawals on retirement are tax-free. That means no tax has to be paid on all of the interest or additional income earned by the Roth IRA investments.
Retirees who have their own businesses also may set up SEP-IRAs, Keogh plans, Simple IRAs, and solo 401(k) plans which have higher contribution limitations for the ones over 55.
The best method of earning money as you retire is within the form of dividends, interest, as well as capital gains from investments. Capital gains and dividends are taxed at lower rates than regular income, which ranges from 0 percent to 20 percent depending upon your overall income tax bracket. And unlike income from a business or a job, such income isn’t subject to Medicare or Social Security taxes.
Most retirees continuously operate their own businesses or begin new ones. For instance, some retired workers work part-time as consultants for their previous employers and additional clients. Having a business includes an excellent method of getting tax deductions. You might deduct all of the necessary costs incurred to conduct business, as long as they’re reasonable in amount. That includes business travel, price of business equipment like computers, and home or outside offices.
Contributions to Charity
Retirement is a period most individuals think about giving back to the community by making a charitable contribution. These types of contributions are deductible as an itemized deduction; but, subject to special limits. Cash contributions of around 50 percent of your AGI are deductible every year as itemized deductions.
If you donate any property other than cash to an eligible institution, you generally may deduct the property’s fair market value. However, if that property appreciated in value, you might need to make a few adjustments.
That applies if you do not itemize the deductions. Anyone who is 65 and up by Dec. 31st of the tax year can be entitled to higher standard deductions. Technically, you’re considered 65 upon the date before your 65th birthday in order for you to take the higher standard deduction if you’re age 65 by Jan. 1.