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 for the 2018 tax season, 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 Deductions for Seniors
1. Medical and Dental Expenses. Due to recent tax changes, for the 2017 and 2018 tax years you will be able to deduct medical and dental expenses for amounts over 7.5% of your Adjusted Gross Income (AGI). Beginning January 1, 2019, that amount will raise to 10% of your AGI.
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. Prepaid medical costs, such as the portion of any lump sum entry fee and monthly fee attributable to medical care paid by retirement community residents, are also deductible on your 2017 taxes.
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 $6,000 annually to your IRA. Traditional IRAs permit you to make tax-free contributions, although you 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.
Taxpayers can also deduct contributions to a traditional IRA if they meet certain conditions.
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 2017 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 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 directly to the charitable organization.
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.
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, in New Hampshire, there is no state income or sales tax. There is also an elderly exemption for property taxes. This is, perhaps, one of the reasons so many people retire to New Hampshire.