Retirement Tax Deductions Under the Law
As a senior citizen, you may want to be aware of the special or increased tax deductions available for older or retired people. If both your spouse and you are 65 or older by December 31 of the tax year, for example, you will be able to receive a higher standard deduction if you file your return jointly. The standard deduction benefits individuals who have relatively modest personal deductions. The vast majority of taxpayers have started using the standard deduction after the Tax Cuts and Jobs Act doubled its size in 2018.
Other useful deductions may arise in the area of business expenses, since retirees may run their own businesses. If you run a business, or even if you run a business part-time, you can deduct any ordinary and necessary expenses that you reasonably incur in the course of operating your business. Expenses related to computers and other equipment, business travel, and offices outside or inside your home may be covered. While most people do not expect to sustain losses in the course of operating a business, you can potentially deduct any business losses from your other income.
Retirement Plans
People who are over 50 will be able to place larger annual amounts in retirement plans that allow tax-deductible contributions, such as IRAs and 401(k) plans. Another type of plan, known as a Roth IRA, requires individuals to pay taxes on contributions but not on withdrawals. People over 50 can place larger amounts in a Roth IRA as well. Certain types of retirement plans are designed for older individuals who run their own businesses. Examples include simple IRAs, SEP IRAs, and Keogh plans. People over 55 can place greater annual amounts in these plans.
Healthcare Costs
If you itemize your deductions rather than taking a standard deduction, you may be able to deduct certain types of medical and dental expenses. For example, you might claim a deduction for health insurance premiums, nursing home care, prescription drug costs, and other out-of-pocket costs. This deduction takes effect only if the medical expenses of a taxpayer exceed a certain percentage of their adjusted gross income.
Charitable Donations
You can claim a donation to charity as an itemized deduction in many cases. If you donate money rather than property to a charity, you can deduct a cash contribution up to a certain percentage of your adjusted gross income. For property donations, you can deduct the fair market value of the asset in most cases. Certain exceptions may apply if you donate a vehicle worth more than $500 to the charity, or if the asset has appreciated in value over time. Some individuals prefer to make all of their charitable donations in one year, or in a limited number of years. This helps ensure that their itemized deductions are greater than the standard deduction that they could have claimed.
Selling a Home
If your children have grown up, and you no longer feel the need to live in a house, you may consider selling your home to move into a smaller residence. If you sell your home, you may receive a substantial profit, which may be entirely free from tax up to a certain level.
