Elderly or retired people have access to certain types of tax deductions that can significantly reduce their overall obligations. Many people do not itemize their deductions and simply receive a standard deduction. If you will turn 65 by January 1 of the year after the current tax year, you will receive a higher standard deduction. You also can get a higher standard deduction if your spouse is older than 65, and you file your return jointly.
Another common type of deduction that may help aging Americans is a deduction for medical expenses. These can be substantial for elderly people, even if they receive Medicare. You can apply this deduction to medical and dental expenses that go beyond 7.5 percent of your adjusted gross income.
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Deductions for Contributions to Retirement Plans
Contributions to 401(k) plans and IRAs are tax-deductible, regardless of your age. If you are over 50, moreover, you can make a greater contribution to this type of plan. If you run your own business, your plan may have contribution limits that increase for people who are over 55. Roth 401(k) plans and IRAs are somewhat different because you pay tax on contributions but not on withdrawals after retirement. Income and interest in Roth accounts thus are fully tax-free.
Deductions for Investment Expenses and Business Expenses
Investment dividends, interest, and capital gains provide one of the main sources of income for retired people. They are taxed less heavily than other types of income and may not be taxed at all for people in some tax brackets. Before the Tax Cuts and Jobs Act took effect in 2018, you could apply a deduction for any fees for investment-related assistance that go beyond two percent of your adjusted gross income. This deduction also applied to fees for accountants, lawyers, investment newsletters, or agents who collect investment income for you, but not to broker fees related to obtaining investment property. This deduction may be revived after 2025 when the Tax Cuts and Jobs Act expires.
You may choose to start a new business during retirement or run an existing business from your home. Some aging people may want to stay involved with their former employer by working part-time. A deduction will apply to any necessary and reasonable business expenses. It could cover the cost of computers and home office supplies, among other items.
Deductions for Charitable Contributions
Although certain restrictions apply, charitable contributions usually are tax-deductible if you itemize them. You can apply the deduction to a cash contribution as long as it is no greater than 50 percent of your adjusted gross income. Contributions that do not consist of cash may pose more complications. You may be able to apply a deduction to the fair market value of the property, unless the value of the property has increased. Vehicles donated to a charity can qualify for a deduction based on the gross proceeds of the sale by the organization.
Deductions for Selling a Home
If your children have moved out, and you no longer need a large home, you may want to sell your home and move into an apartment or a condominium. The profit that you collect from selling your home may be tax-deductible. To qualify for this deduction, you would need to have lived in your home for at least two of the last five years before selling it. The deduction accounts for $250,000 of the profits if you are single and $500,000 if you are married and filing a joint return with your spouse.
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