Certain tax deductions are available only to people age 65 and up. Don’t wait for Washington to re-write the tax law, if you are doing some mid-year tax planning.
There are ways to limit how much you owe in taxes, and according to a recent article in Kiplinger, “Retirees, Cut Your Taxes With These Moves,” you should be proactive about trimming any possible taxes by making the most out of what’s available right now.
Forms. Make sure that you have the right form for 0% gains. Investors with taxable income up to $37,650 on a single return and $75,300 on a joint return, get a nifty 0% tax rate for their long-term capital gains. But while all the gains are tax-free, they still have to be reported on your tax return. If you just report your profits on your Form 1040, they’ll be taxed in your top tax bracket. It is better to report your gains on Form 8949 and carry them over to Schedule D. This will apply the 0% rate to qualifying profits.
Standard Deduction. Use a supercharged standard deduction for taxpayers age 65 and older. Younger taxpayers get the 2016 standard deduction of $6,300 (married couples, $12,600). But at age 65, the write-off grows to $7,850 for singles and $13,850 for a couple, if one spouse is 65 or older ($15,100 if both spouses are 65 or older). If that number is greater than the total of your itemized deductions, you’ll avoid the hassle of itemizing and save money.
The “Angel of Death” Tax Break. The current tax basis of inherited assets is their value on the date of death of the previous owner. Congress says that stepping up basis to date-of-death value will save heirs more than $32 billion this year. If you sold inherited assets, don’t leave these savings on the table.
Medicare Premiums. Similar to other health insurance premiums, Medicare expenses count as a deductible medical expense. However, they are generally deductible only to the extent that they exceed 7.5% of adjusted gross income. However, if you’re self-employed, you’re not limited by the 7.5% threshold.
IRAs. If you’re married and your spouse is still working, he or she can contribute up to $6,500 a year to an IRA that you own, if you were at least 50 last year (otherwise, the limit is $5,500.). If you have a traditional IRA, contributions are allowed up to the year you reach age 70½. With a Roth IRA, there’s no age limit. As long as your spouse has enough earned income to fund the contribution to your account, this tax shelter is still available.
Waiver for Underpayment on Estimated Taxes. The IRS recognizes that sometimes, shifting from being an employee to a retiree can lead to mistakes on estimated tax payments. If you have a reasonable excuse, look at Form 2210 to see if you are eligible for a waiver on an underpayment penalty.
Reference: Kiplinger’s (March 2017) “Retirees, Cut Your Taxes With These Moves”