It can be difficult to keep on top of all the different tax deductions out there, especially tax breaks for seniors. However, taking advantage of the tax benefits that favor seniors and retirees is definitely worth the extra effort.
When you’re preparing your taxes in 2020 from the 2019 tax year, you should take these 8 tax benefits for seniors into account. And of course, it’s always best to check with a professional if you have any questions about your specific tax situation.
Top 8 Tax Breaks for Seniors for Tax Year 2019
1. Medical and Dental Expenses
For the tax years 2017 and 2018, everyone could deduct medical expenses over 7.5% of Adjusted Gross Income (AGI). This rises to 10% of AGI for all taxpayers, regardless of age, with income earned after January 1, 2019. Taxpayers can deduct health insurance premiums, including Medicare premiums, long-term care insurance premiums, prescription drugs, medical transportation, nursing home care, and other out-of-pocket healthcare expenses.
For those planning a move to a retirement community such as Sugar Hill, a portion of the lump sum entry fee and monthly fee attributable to medical care also can be a medical deduction on your taxes. Make sure to ask your tax preparer about this deduction.
2. Capital Gains from Selling Your House
If you’ve recently sold a house, you’ll likely benefit from a tax break for the sale of your home. If you lived in your house for at least 2 of the 5 years before you sold it, up to $250,000 of the profit ($500,000 for married taxpayers filing jointly) is not taxable. If you profited less than $250,000 ($500,000 for couples), you will only have to report the sale if you receive a Form 1099-S from your real estate broker.
If your spouse passed away, and you did not remarry before you sold your main home, you can exclude $500,000 if the sale took place within two years of your spouse’s death. If you sold another home 2 or less years before the sale and took the capital gains exclusion for it, you can’t take the exclusion for the second home. There are a few more criteria, so if either of these apply, contact a tax advisor.
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3. Retirement Plan Contributions
If you’ve continued to contribute to your IRA, congratulations on a wise choice! If you’re over 50, you can contribute $6,500 annually to your traditional IRA. Although interest earned from your traditional IRA generally is not taxed in the year earned, it is not tax-exempt interest. Do not report this interest on your tax return as tax-exempt interest.
For traditional IRAs, you are permitted to make tax-free contributions and then must pay taxes when you withdraw the money. On the other hand, you may have to pay taxes on money contributed to a Roth IRA, but you won’t have to pay taxes when you withdraw your money.
4. Investment Expenses
Continue to make your money work for you even after you retire by investing. Dividends and capital gains are taxed by the federal government at lower rates than regular income and are not subject to Social Security or Medicare taxes.
Fees for investment advice or accounting services are deductible if they, as well as other itemized personal deductions, exceed 2% of your AGI. These fees include attorney and accounting fees, financial planner fees, safe deposit box fees, subscriptions to investment newsletters, fees for online services, and more. Fees paid to a broker for stocks, bonds, and other investment properties are not deductible.
5. Business Expenses
If you have your own business or you continue to work as a freelancer or consultant, you can deduct your business expenses, including travel, your cell phone, equipment, and office space.
6. Charitable Contributions
Many of your charitable donations in 2019 may be deductible. Generally speaking, cash contributions of up to 50% of your AGI are deductible if you itemize using Form 1040 or 1040A. You can also deduct the fair market value of the donated property, although if the property has appreciated in value, you should consult with a financial advisor. If you donate a car, boat or airplane, your deduction is limited to the gross proceeds of its sale by the charitable organization (if the value is over $500).
You can donate money from your Traditional IRA without paying taxes if your account custodian sends the donation as a Qualified Charitable Donation (QCD).
7. Standard Deduction
If you’re no longer paying mortgage interest, it may make sense to take the standard deduction. If you turn 65 by January 1 of the next tax year or if you’re blind or disabled, you get a higher standard deduction. If filing jointly, only one spouse must meet the criterion. You must use Form 1040 or Form 1040A to qualify for the credit.
For the tax year 2019, the standard deduction is $1,300 higher for those who are over 65 or blind. It’s $1,650 higher if also unmarried and not a surviving spouse.
8. Caregiver Credits
There are two options for deducting caregiver-related expenses:
Dependent Credit. If your child provides at least half your support, that person may claim you as a dependent. If several children cooperate in providing financial support, only one may claim you.
Elderly Dependent Care Tax Credit. If your child pays for daycare or home care in order to work, the child may receive an additional tax credit.
Some federal tax deductions are similar to deductions in some states, but states may offer additional tax exemptions.
For example, New Hampshire is known as being tax-friendly toward retirees. Social Security income, withdrawals from retirement accounts, and public and private pension income are not taxed. This is, perhaps, one of the reasons so many people retire to New Hampshire.