Tax Deductions for Seniors

Tax Deductions: Ways to Save this Tax Season

Tax Deductions: Tax season is upon us once again, which means we’ll all be gathering our tax information and filing our taxes by the 2014 deadline: Tuesday April 14th. If you’re a senior or a retired person, be sure to understand and take advantage of the tax deductions available to you to reduce your income taxes. We’re no tax experts, so you’ll want to be sure to check with your tax preparer or CPA, but here are some important tax deductions of which you’ll want to be aware.

1. Medical and Dental Expenses.
   Medical expenses are often one of the largest expenses for retired people. Fortunately, some medical expenses are deductible. These include health insurance premiums, including Medicare premiums, long-term care insurance premiums, prescription drugs, nursing home care, and most other out-of-pocket heath care expenses.
2. Selling your House.
   Seniors often sell their homes to move into smaller places or retirement communities. If you’ve lived in your home for a long time, you probably have substantial equity and will earn a large profit on the sale. Fortunately, you may not have to pay tax on your profit. As long as you live in your home for at least two out of the five years before you sell your house, some of the profit you make on the sale is not taxable.
3. Retirement Plan Contributions.
   Just because you’re retired or semi-retired doesn’t mean you can’t make tax-deductible contributions to retirement plans such as IRAs. Those over 50 have higher contribution limits for traditional IRAs, Roth IRAs, and 401(k)s. With a Roth IRA, you’ll pay taxes on the income you contribute now, but the withdrawals upon retirement are tax-free. This means no tax need be paid on all the interest or other income earned by your Roth IRA investments.
4. Investment Expenses.
   The best way to earn money when you retire is in the form of interest, dividends, and capital gains from investments. Dividends and capital gains are taxed at just 15% (5% for taxpayers in the lowest income tax bracket). Unlike income from a job or business, these types of income are not subject to Social Security or Medicare taxes.In addition, fees you incur for investment advice or accounting services are deductible to the extent they, along with your other itemized personal deductions, exceed 2% of your adjusted gross income.Examples include:

   • attorney and accounting fees
   • safe deposit box fees
   • subscriptions to investment newsletters
   • fees for online services
   • home computers used for investment purposes
   • fees to financial planners, and
   • fees you pay to a broker, bank, trustee, or similar agent to collect investment income, such as your taxable bond or mortgage interest, or your dividends on shares of stock.

   However, you cannot deduct fees you pay to a broker to acquire investment property, such as stocks or bonds. You must add the fee to the cost of the property and recoup your expenses when you sell.
5. Business Expenses.
   Many retirees continue to run their own businesses or start new businesses. For example, some retired employees work part-time as a consultant for their former employers and other clients. Having a business (whether full- or part-time) is a great way to get tax deductions. You may deduct all the necessary expenses you incur to do business, so long as they are reasonable in amount. This includes business travel, the cost of business equipment such as computers, and outside or home offices.
6. Charitable Contributions.
   Retirement is a time many people consider making charitable contributions. Such contributions are deductible as itemized deductions; however, they are subject to special limitations.
7. Standard Deduction.
   This applies if you don’t itemize your deductions (many seniors don’t itemize if they’re no longer paying mortgage interest). Seniors who are 65 and older by December 31 of the tax year are entitled to a higher standard deduction.

The above are merely guidelines.

See a tax professional for specific advice and to ensure you’re making proper deductions.

Alternatives for Seniors is a print and online directory that specifically caters to the housing and personal care concerns of senior citizens and their families since 1992. Call our Senior Specialists at (888) WE-ASSIST (888-932-7747) or visit the Alternatives for Seniors website to begin searching for the perfect home for you or your loved ones. Also, be sure to join our Facebook community and follow us on Twitter.