There are many different tax breaks and loopholes in our system for religious organizations, schools, and businesses, as well as for certain groups of people. One such group is senior citizens, who may especially benefit from certain tax deductions. Each year, seniors have expenses that can be deducted from their state and federal tax returns, which can have a positive impact on their financial situation, including medical, financial, and even standard deductions.
While just about every senior citizen has some medical expenses, many do not know that they can deduct the cost of those expenses from their tax bill. Health insurance, including Medicare costs, and long-term care premiums may be deducted from income taxes, as well as prescription costs and other out-of-pocket health care costs. As of 2013, all senior citizens over the age of 65 may deduct medical and dental expenses that exceed 10% of their yearly adjusted gross income.
Senior citizens may also deduct a certain amount of financial expenses related to their investments. This is very important for seniors since many depend on dividends, capital gains, and interest from their investments to provide income while they enjoy their retirement years. Investment expenses that exceed 2% of their adjusted gross income may be deducted. This includes any financial, legal, and accounting fees, in addition to any online investment banking fees or investment publication subscriptions. IRAs accounts and 401(k)s are also a source of tax savings since they have higher contribution limits for senior citizens. This means seniors may contribute more money tax-free per years or can contribute to a Roth account and pay taxes up front if they believe the tax situation will be worse when they enter retirement.
The standard deduction is one that many seniors may not realize is the best option for them, especially if they no longer make mortgage payments and no longer itemize the interest payments. Single seniors over the age 65 by December 31st of the current tax year have the ability to add an extra $1,300 onto their standard deduction, while married seniors filing jointly can add expect to add $1,600 to their standard deduction.
If you would like to get more information about money-saving tax strategies during your retirement years, or if you’d like to have your current situation reviewed to see if there are any deductions or asset protection planning strategies that you can take advantage of, please set up an appointment at our Encino elder law office by calling (818) 905-6088.