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Tax Deductions Seniors & Retirees Need to Know About

Tax Deductions Seniors & Retirees Need to Know About

No one is ever excited at the thought of paying taxes. Indeed, sending a portion of your earnings to Uncle Sam might not sit well with many. The consolation, however, is in the fact that one can apply a couple of deductions and exemptions to reduce what one will eventually send to Uncle Sam. 

There are a series of tax benefits like credits and deductions meant to offset the burden of tax payment. Seniors and retired people might qualify for a series of such benefits, which will help reduce the tax burden.

 

Here are ten of such deductions seniors need to know about:

  1. Better Standard Deduction

You can either itemize or go by the standard deduction rule when filing your tax. The standard deduction is a good choice if your entire personal deduction is less than the allowed standard deduction. The 2018 mass tax reform (TCJA) almost doubled the standard deduction. As a result, nearly all taxpayers, including seniors (90%), qualify for the standard deduction.

If you are 65 and above by the end of Dec, your standard deduction will be higher than what many young people have. This, however, applies to people whose spouse is above 65, and they filed a joint return. 

  1. Medical and Dental Expenses

Many seniors and retirees often face huge dental and medical expenses. The good news is, itemizing your deduction makes such expenses deductible. Sample expenses are Medicare and health insurance premiums, prescription drugs, care for nursing homes, and others. 

Itemizing your deduction will deduct dental and Medicare expenses from the income tax, using Schedule A of your tax return. There is, however, a limit of 7.5% of the AGI (Annual adjusted income) for 2019 and 2020. The implication is that only expenses above 7.5% of the taxpayer's AGI can be deducted. 

  1. Donations to Charity

Many people consider the retirement period to give back to the community via charitable contributions. Based on the CARES ACT (Coronavirus Aid, Relief, and Economic Security), one can deduct as much as $300 for charitable contributions without itemizing.

Contributions above $300 can only be deducted as itemized deductions and have other limitations. You can remove up to 60% of your AGI cash flow that can be deducted every year. 

Donating cash and properties to an eligible firm is allowed to deduct the property's fair market value. For properties that have been appreciated, it is essential to adjust them accordingly. For donations like cars, airplanes, boats, the deduction is limited to the proceeds from the sale by the firm. 

  1. Sale of Your House

It is pretty common for seniors and retired people to sell their houses to move into a senior community or smaller place. For people that lived in their homes for a long time, there is enormous equity which will result in a significant profit on such sales. 

Even better is that many need not pay any tax on the profit. Once you lived in the home for at least two years of the five years before the sale. Whatever profit you make on such a sale - $250,000 for single taxpayers and double for married couples filing jointly cannot be taxed.

  1. Contributions for Retirement Plan

The fact that you are retired is not a license not to make tax-deductible contributions for your retirement plans. As long as you are above 50, you have a higher limit for gifts for 401(k), Roth IRAs and traditional IRAs. 

For those who prefer to contribute to a Roth IRA, taxes on the income you contribute presently are compulsory, even though whatever you withdraw when you retire is not taxed. As a result, all interests are tax-free. 

  1. Business Expenses 

Many retirees prefer to run their business or start a new one. It is common to see retired personnel consult part-time for former employees or other clients. 

Whatever business you have can get you tremendous tax deductions. It is possible to deduct from your business income all expenses you incurred in the business provided they are reasonable. As a result, business travel, equipment cost like a copy machine, etc., can be deducted

Also, it is possible to deduct them from your income if there are losses. 


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