So, you have finally retired and are all set to sit back and relax when you are suddenly slapped with a tax return form. Managing taxes with a fixed income in retirement can be quite a pain, but if you have a good understanding of what can count as deductibles, you can reduce your tax amount to a great deal.
WHAT KIND OF TAX BREAKS APPLY IN YOUR RETIREMENT
There are seven kinds of tax breaks that retirees can include in their tax return forms so that they can pay as less taxes as possible. These tax breaks are:
Medical Costs and Dental Expenses
When you retire, you should include the premiums you pay for your medical insurance as tax deductibles. You should also include your expenditure on care services in the long term as well as insurance contracts in the long term. But you must make sure you itemize all your deductions on Schedule A of your tax return forms.
If you are 65 years or older, the Internal Revenue Service states that your medical and dental costs must exceed7.5% of your annual income, to be counted as a deductible.
Vitamins and Supplements
If you are suffering from a prolonged medical condition and have to pay a fortune on vitamins and nutritional supplements, you can include these items as deductible items in your tax return forms. But these items must be recommended by the doctor and it would be good if you ask your doctor to write you a note about these items, so that they can be included in your tax return forms. You can save quite a lot of money during your retirement, if you include these items.
Visits To The Hospital
It is true that older people are more likely to have to go to the hospital for a screening or tests and these can often accrue to a lot. It is a good thing then that the Internal Revenue Service department includes medical transportation as a deductible expense in your tax return forms. Your deduction is calculated at 23.5 cents per mile and it always helps if you itemize your tax return forms. If you have to make an overnight trip to the hospital for a medical reason, then this cost will also be included as a deductible. If there is some professional caring for you, who also has to travel with you, then his or her lodging expenses are also included.
A Caretaker’s Expenses
If you require a caretaker’s service in your retirement and the person stays with you as well, then the amount you pay for his or her services are included as deductibles. This amount must exceed 7.5% of your annual income. The only criterion is that the nurse or caretaker must be performing general service for your well-being.
If the nurse also takes care of the house, this will come under household expenses and not personal care expenses. You can also include the extra amount you pay for the caretaker’s lodging or additional rooms as a deductible.
Medical-Related Items
Often you may think items like bandages, wheelchairs, contact lenses, hearing aids, prescription glasses are too minor to include as deductibles. You may be surprised to find that the Internal Revenue Service allows these medical-related items as deductibles in your tax return forms. But if these items have been paid for by insurance companies, they cannot be included as deductibles.
Individual Retirement Accounts
If you have retired, but say your spouse is still is working, he can contribute towards your traditional individual retirement account. This is applicable right up to the age of 70 years and in case of a Roth individual retirement account, there is no age criteria. These contributions can be included as deductibles in your tax return forms and can amount to quite a lot.
Home Owner Tax Breaks
You may want to purchase a property for yourself when you retire, but the high property taxes make you think again. But don’t worry, if you are 65 years or older and if your income is $35,000 or less, you may be eligible for a property tax break.
Now you can finally relax knowing that if you keep a track of your medical expenses, dental care costs, medical transportation costs, your nurse’s lodging expenses et, you can save a lot on your taxes. Just make sure you keep all medical-related bills and always get a doctor’s recommendation, just in case. Go ahead, enjoy your golden retirement days.
BHATIA & CO, INC, CPAs
