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10 Tax Deductions Every Current and Future Retiree Should Know

10 Tax Deductions Every Current and Future Retiree Should Know

You’ve finally reached your 66th birthday, and it’s time to say goodbye to the daily grind and set off on a life of retirement ease.

Or so we think.

In truth, retirement for most of us will require careful budgeting and smart financial planning to make our savings last for two or three more decades.

One way to save every penny is to maximize your tax deductions in retirement.

Here are 10 important tax deductions every current and future retiree should know.

Standard Deduction

When we talk about maximizing deductions, most of us leap immediately to itemizing deductions when we file our taxes.

But if you already paid off your house and have limited out-of-pocket medical expenses, the standard deduction might be your best bet.

Even better, folks over 65 get an extra $1,550 if filing single, or an extra $1,200 if married filing jointly.

Medical Deductions

As much as we try to push back the clock, our aging bodies require more medical attention in retirement.

Recognizing this, the IRS allows taxpayers over 65 to deduct all out-of-pocket medical expenses that exceed 7.5% of their adjusted gross income, rather than the 10% floor required of younger Americans.

Home Business Deductions

Being retired doesn’t mean that you can’t make money.

Many retired people find rewarding work as consultants or launch a second career through a home-based business.

While you certainly have to pay tax on any earnings, you can also deduct a slew of business expenses, from the home office deduction to gas mileage to the cost of business-related equipment.

Elderly or Disabled Tax Credits

Contrary to what the name implies, you can claim this credit even if you’re not disabled.

If you are over 65 and meet the income requirements, you can qualify for a tax credit of up to $7,500 for married couples filing jointly or $5,000 for single filers for tax year 2014.

The same credit is available for people under 65 who have a permanent and total disability.

Selling a Home

Retirement is a great time to downsize to a smaller place or invest in that RV you’ve always dreamed about.

If you’ve lived in your house for at least two of the past five years, you can sell the home virtually tax-free.

There are limits, but they’re very generous.

Single tax filers can earn up to $250,000 tax-free on the sale of a house, while married couples filing jointly can make $500,000 on the sale of a house without paying taxes on the profit.

IRAs

If you invested in a Roth IRA, you have the luxury of withdrawing money from the account tax-free after age 59 ½.

Withdrawals from a traditional IRA or 401(k) will be taxed as income, but at least you don’t have to pay an early withdrawal penalty if you’re over 59 ½.

Retirement Savings

If you have a source of income during retirement, you can continue making contributions to a retirement savings account like a traditional or Roth IRA.

In fact, the 2014 contribution limit is $6,500 if you’re over 50, which is $1,000 more than folks under 50 can invest.

Charitable Donations

As part of your post-retirement downsizing, you might decide to get rid of one of the cars or clear out all of the kids’ old furniture.

If you donate these items to a charitable organization, you can deduct the fair market value from your taxable income.

There’s a limit on charitable deductions — 50% of adjusted gross income — but don’t forget that any money you spend out-of-pocket while doing volunteer work may also be deductible.

Investment Expenses

Income from investments is taxed at a lower rate than income earned from a job. That’s great for retirees hoping to live off of their wise investments.

More good news: you can deduct most investment-related expenses, including fees for brokers, financial planners and lawyers.

The deductions must be itemized and are subject to the 2% rule.

Social Security

Most of us will rely on Social Security checks to help fund our retirement.

It’s important to note that a portion of your Social Security checks may be taxable, depending on your income during retirement.

The most you could possibly be taxed is on 85% of Social Security income, but that’s only for the highest income earners.

Single filers earning less than $25,000 and married couples earning less than $32,000 for 2014 won’t owe any taxes on Social Security earnings.

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Comments

  1. Trna Jan Jones says:

    I have a home mortgage with a person that loans money, but is not a finance professional. I need to know how to enter the Interest amount

  2. Davis Haw says:

    On my Sched C, Tax Act did not subtract my expenses from my net income . Wonder why? Can this be corrected?

  3. Since we only have SS our income is below zero. We have plenty of deductions, but all tax act shows for a refund is the taxes we paid on our social security. You are saying their are many tax deductions available but to what end when all Tax act ever shows for a refund is the small amount we paid in taxes that we did not have to. Or medical deductions alone were twice as much as the taxes we paid and our mortgage was also twice as much as the taxes we pain on SS and yet no matter how many times I entered and reentered the information the refund was for the total of the taxes we paid on SS! What good is that. Where is there any incentive for a retiree to buy a second home when all the deductions we used to get are evidently no longer available per Tax Act. This is so heart breaking. Medical expenses are necessary to maintain good health and we still have a large mortgage on our house yet this now means nothing since we retired and have SS as our source o income, It is not a lot of money as you can tell, because we show no income other than a small negative income! Please explain why! I am going to see a professional an try to understand all this before I finish my filing with tax act.
    Sincerely, Jean Koehrer

  4. I signed up in 2014 to lock in the rate of $13 in order to file my 2014 taxes. when I filed my 2014 taxes I had to pay again to file – had already paid for the $13 rate and so ended up paying it 2 times. but alas, can deduct both amts from taxes when I do 2015. still cheaper than Turbo Tax or HR Block – been there. Faster turn around less than 1 week.

  5. Ron Bauer says:

    When I finished my tax year 2013 return, I signed up to “lock in the lowest 2014 TaxACT price.”
    I didn’t see that option for tax year 2015 as I was doing my 2014 taxes.
    Is it still available?
    If so how can I get it?

    Thanks

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