Our estate planning attorneys can tell you firsthand that not many senior citizens are aware of the key tax deductions and credits that are available to them each year. As a result, this group of individuals ends up passing up the opportunity to keep more money in their pockets. With a little bit of smart tax planning, you can pay significantly less in taxes in the years following your retirement. If you are 65 years or older, here is a guide detailing some of the senior tax benefits you can take advantage of to retain more of your retirement income.
Most senior citizens can attest that healthcare costs do account for the largest share of expenses in the years following retirement. Healthcare premiums, drug prescriptions, and other related costs can easily take up 30% of your total income. The good news is that a bunch of these expenses are tax deductible.
However, even if an out of pocket expense is tax deductible, it does not necessarily mean you can automatically deduct it from your taxable income. Only expenses that exceed 7.5 percent of your adjusted gross income (AGI) can be deducted.
CAPITALIZE ON STANDARD DEDUCTIONS
A Standard deduction seeks to slash the amount of income of which an individual is taxed and it normally varies depending on an applicant’s filing status. Individuals who are of age 65 and over are entitled to enjoy a higher standard deduction on their incomes. Note that you cannot claim the deduction if you itemize deductions. If you are at least 65 and single, your deduction is worth up to $1,300 on top of the standard while for married couples it is $1,600 for both you and your better half.
Make contributions to your retirement fund
Yes, this is probably one of the best tax breaks available for seniors. Actually, the law stipulates that adults over 50 can contribute higher amounts to their retirement funds compared to people under 50. For example, married couples over 50 can set aside up to $12,000 to tax-deferred retirement accounts such as IRA or 401(k) and have this amount deducted from their taxable income.
When we attain senior citizenship status, the goal is always to reap income from investments we made during our working years. Such income could be in the form of interests, dividends and capital gains on investments. Accounting fees, consultation fees, subscription to investment newsletters are all expenses that can be classified as itemized deductions (As long as they exceed 2 percent of your AGI).
KNOW WHEN AND HOW TO WITHDRAW FROM IRAS
It is important to strategically plan the manner in which you will withdraw from your social security. Spending your retirement funds the wrong way can translate to you paying thousands more in taxes every year. This situation mostly occurs to retirees who have no pension and whose retirement income solely comes from IRA and social security. Luckily, an expert retirement planner can help you work out a strategy that will get the most out of your after-tax income.
As estate planning attorneys, we see a lot of senior citizens who struggle to make ends meet. That’s precisely why we use our blog to inform the senior community about how to make their dollars stretch so that they can enjoy their golden years comfortable without having to worry about finances. If you have a topic you would like us to cover on our blog, please contact us.