The tax season can be overwhelming for everyone. It is a tedious task to keep track of the bills, receipts, investment proofs, and calculating how much money you owe to the government. Every citizen of the country has to pay income tax, which includes seniors as well. Income tax becomes an added financial strain to seniors and retirees who are already burdened with their diminishing savings and lack of regular income. However, you can avoid paying a hefty income tax if you make use of the tax deductions that will aid your attempt to reduce your income tax.
The important tax deductions that will help you in reducing the total amount of income tax are as follows:
The standard deduction comes in handy for seniors who wish to take their income tax amount to bearable levels. Every taxpayer can opt for the standard deduction or is presented with the option of itemizing their personal deductions on the Internal Revenue Service’s (IRS) Schedule A. You can opt for the standard deduction if your personal deductions like home mortgage interest, real estate taxes, charitable contributions, and medical expenses are less than the applicable standard deduction. Moreover, the Tax Cuts and Jobs Act that came into force in 2018 roughly doubled the standard deduction, which is profitable for the general population in general and the seniors in particular. Anyone who is 65 years of age or older by December 31 of the tax year is entitled to a higher standard deduction than their younger counterparts. Also, you can claim the higher deduction only if your spouse is older than 65 years and you file a joint return.
Medical and dental expenses
For seniors and retirees, medical and dental expenses partake a majority of their finance. However, some of these expenses can be transformed into deductibles if you decide to itemize your personal deductions. These include health insurance premiums and it takes into account Medicare premiums as well, long-term care premiums, nursing home care, prescription medications, and most of other out-of-pocket health care expenses. So, as per the Schedule A of the income tax returns, if you itemize your deductions, medical and dental expenses can be treated as deductibles from your income tax. Another fact to bear in mind is that the rules for deducting medical and dental expenses from the income tax changes in 2019. Starting from 2019, the medical and dental expenses in excess of 10% of a taxpayer’s adjusted gross income (AGI) will be considered as deductibles.
It is common knowledge that charitable contributions qualify as deductibles. However, these charitable contributions have to be within the confines of the rules set by the IRS. For instance, cash contributions of up to 60% of your AGI can be considered as a deductible each year as an itemized deduction. Also, these donations have to be made to IRS-recognized institutions.
Retirement plan contributions
There’s a misconception that retired or semi-retired people cannot make contributions to their retirement plans such as the individual retirement accounts (IRAs). Seniors and retirees can still make tax-deductible contributions to their retirement plans, but there’s a higher contribution limit levied over people who are older than 50 years of age for contributing to traditional IRAs, Roth IRAs, and 401(k). For retirees who have a steady income from their own business, they can even establish SEP-IRAs, Simple IRAs, Keogh Plans, and solo 401(k). These plans have higher contribution limits for people over 55.