If you are a Senior odds are good that you are past your peak earnings years, probably on a fixed income and likely concerned with stretching your dollars as best as you can. Clearly monitoring spending habits and planning purchases wisely are important, but what about saving money by sending less to the IRS? As it turn out, there are some nifty tax deductions that many seniors can legitimately take. Now that is certainly something to learn about and incorporate going forward! The rest of this article helps to show many of the tips to keep in mind while preparing your next tax return.
7 Tax Tips For Seniors to Keep In Mind
There are many deductions that seniors can take advantage of. Some of these deductions include:
- Standard Deduction - Everyone is entitled to take the standard deduction if they don't itemize their deductions. The kicker for seniors over 65 (or legally blind) is that they get a higher standard deduction. This is easy money not to miss.
- Charitable Contributions - Many seniors who have sufficient means want to give back to society and often make generous charitable contributions. Be aware that cash contributions up to 50% of your adjusted gross income is deductible. Donations of tangible property such as cars or jewelry are deductible as well.
- Medical/Dental Expenses - For many seniors, medical concerns are very real and the costs pile up. Fortunately, taxpayers who itemize and are over 65 can deduct medical and dental expenses up to 7.5% of your AGI for the tax year 2017. You may qualify for a higher threshold if you are under 65 years old.
- Business Expenses - Many retirees open up a small business upon retirement. Having a business is a great way to find eligible tax deductions. Expenses necessary to run a business, including travel, are generally deductible.
- Investment Expenses - Many seniors have been fortunate enough during their earlier years to put aside some money in investments. Having investments may enable folks to take certain deductions. Although there are limits on this, deductions for accounting fees, computers used for investments, costs of financial planners and tax preparation may be deductible. Be sure to check the details on these.
- Sale of Residence - Retirees often consider selling their homes and moving to a different location. The sale of a home can open up enormous tax deductions. Up to $500,000 profit is legally not taxable for people living in their home for at least two of the five years prior to the sale of the home. Sweet!
- Contributions to Retirement Plans - Just because you are a senior doesn't mean that you can't contribute to a qualified retirement plan. Indeed, if you are 50 or older, the amount that you can lawfully contribute to these plans is higher than for younger folks. Depending on your plan and financial situation, your contributions may be wholly or partially deductible.
Questions and Answers:
Q: How will the upcoming new tax legislation affect these deductions?
A: Early in 2018, congress passed sweeping changes in the tax law. The old rules still apply for tax deductions for the 2017 tax year. Many folks will see positive developments going forward. For one, the standard deduction has been greatly increased.
Q: Can I itemize and take a standard deduction?
A: It would be very beneficial for the taxpayer, but unfortunately one cannot. You may itemize or take the standard deduction.
Q: How do I document my medical deductions?
A: Be sure to collect receipts and keep a log of mileage. It may be helpful to create a spreadsheet for this.
Q: Will I be flagged by the IRS for making too many charitable contributions?
A: Probably not but no one knows for sure. The IRS tends to look for "outsized" deductions. Unless you are claiming one or more exorbitant deductions, you will probably not hit an IRS red flag.
