13 Tax Deductions for Retirees: This article examines thirteen neglected tax deductions that could save retirees money. You can bypass our comprehensive analysis by visiting Five Overlooked Tax Deductions That Could Save Retirees Money.
A Guide to Manipulating Itemized and Standard Deductions to Maximize Refunds
Do not despair if you receive a notice from the Internal Revenue Service. Regardless, not all IRS notifications pertain to tax audits or collection notices. Annually, this statutory service distributes approximately 170 million notices to individual taxpayers. The purpose of these notices is to assist individuals in meeting their tax obligations and claiming the deductions and credits for which they are eligible. Numerous Americans are neglecting to take advantage of the numerous advantageous tax deductions that the IRS is presenting due to their lack of awareness regarding them.
Frequently, individuals find the tax code to be excessively intricate, or they choose not to be concerned due to the dynamic nature of the regulations governing these tax exemptions. However, individuals, particularly retirees, must be aware that there are numerous ways to reduce their tax liability. They are most likely to take advantage of tax deductions and tax benefits. A tax deduction operates by reducing the taxable income of an individual for the calendar year. In contrast, a tax relief provides a deduction equal to the amount of tax owed, dollar for dollar.
13. Dentist and Medical Expenses
Score: 3
Seniors frequently fail to claim dental and medical expenses as tax deductions. The establishment of eligible medical and dental expenses for the deduction, nevertheless, is under the jurisdiction of the IRS. These deductions are exclusively pertinent to the portion of expenses that surpass 7.5% of one’s AGI. Indemnification for medical expenses comprises nursing services, vision care, long-term care, insurance premiums, and psychiatric care.
Understanding the Purpose and Process of Filling Out Tax Form W-4
Expenses associated with prescription drugs may also be deductible from one’s taxable income. Also included are practitioner fees, insulin, eyeglasses, contacts, hearing aids, and specific weight loss and nutrition programs. Additionally, it is possible to submit a claim for expenses related to attending a medical conference concerning a condition that you, your spouse, or a dependent may be afflicted with, except for lodging and meals. To access the IRS website and obtain additional information regarding the computation of your Adjusted Gross Income (AGI), please refer to that link.
12. Charity Contributions Score: 3
Charitable contributions are a frequently neglected tax deduction that retirees could utilize to their advantage. There is the possibility that deducting charitable contributions on your tax return could result in a reduction of your taxable income. A tax reduction of approximately $1 to $12 may result from itemizing deductions in excess of the standard deduction for each $25 to $50 of value. Even those who claim the standard deduction are no longer permitted to deduct up to $300 in financial contributions to qualified charities for tax years 2023 and 2024.
Individuals who itemize may deduct between 20 and 60 percent of their AGI for charitable contributions. Individuals should also be aware that the 100% deduction from their AGI for financial contributions to qualifying charitable organizations was a one-time deduction that expired in 2021. Additionally, qualified charitable distributions (QCDs) permit contributions directly from traditional individual retirement accounts by seniors aged 70 1/2 or older. This is a direct transfer from an individual’s IRA to a qualified charity, with an annual maximum contribution of $100,000. Although the contribution does not qualify as taxable income, seniors who do not itemize can still qualify for a tax deduction.
11. Contributions to a Spouse’s IRA: 3
Contributions to an IRA by a spouse are an additional neglected tax deduction for retirees that have the potential to yield substantial savings. To contribute to an IRA, one must possess earned income. Nevertheless, your retirement does not automatically halt these contributions. In general, a working spouse of a married individual is permitted to make a contribution of $6,500 to the owner’s traditional or Roth IRA. The maximum IRA contribution for 2024 has increased to $7,000.
One who has a spouse who contributes to their IRA is therefore qualified to receive the tax benefit. The maximum combined contributions to an IRA for the 2023 tax year cannot surpass $13,000 if only one member of the couple is 50 years of age or older. In contrast, the maximum allowable contribution for individuals who are at least 50 years old is $15,000 ($16,000 in 2024).
10. Senior Tax Credit for Low-Income Individuals Rating: 4
Although not precisely a tax deduction, low-income seniors can still save money by taking advantage of a tax credit designed specifically for them. In addition to meeting two income requirements, an individual must be “qualified” to qualify for this tax credit. If you are 65 years of age or older or were under 65 years old, retired on permanent and total disability, and received taxable disability income, you qualify as a qualified individual.
9. Business Expenses Score: 5
Numerous senior citizens pursue entrepreneurial opportunities such as side businesses to augment their retirement resources. These individuals must remit income taxes on the proceeds from their self-employment. Those aged 65 and older, on the other hand, are eligible for deductions on expenses such as those related to operating the business. These expenses consist of expenditures on advertising, supplies, the home office, consultant compensation, and even business education.
8. Deductible from taxes Score for HSA Contributions: 6
Although numerous employers provide health savings accounts (HSAs), retirees frequently fail to recognize this cost-saving opportunity. HSAs offer a tax advantage of threefold. These consist of pre-tax contributions, tax-free earnings, and tax-free disbursements for qualified healthcare expenses. Starting in 2024, self-funded individuals can receive an instant tax deduction on a catch-up contribution to their health savings account once they reach 55.
7. Gambling Losses Score: 7.
It is advantageous for senior citizens and individuals who enjoy wagering to be aware that gambling losses are eligible for tax deductions. Nevertheless, the tax deductibility of these wagering losses is limited to the value of your winnings. Furthermore, it is mandatory to include all winnings as taxable income on your tax return. This deduction is accessible through Schedule A’s itemizing of deductions and requires a complete record of all earnings and losses.
8. Score of the Medicare Premiums
Post-retirement self-employed seniors are eligible to deduct the premiums for Medicare Parts B and D, in addition to the expenses associated with supplemental Medicare policies or Medicare Advantage plans. Whether or not they itemize, self-employed individuals are eligible to deduct these particular expenditures. Those who are not eligible to claim this deduction are those who are insured under an employer-subsidized health plan provided by their employer or the employer of their spouse.
5. Retirement Contributions to a Plan
Score: 9
The deductible contribution that is most significant for individuals aged 50 and above can be made to an IRA or 401(k). Typically, by the time a senior reaches their 50s, their children will have left home and begun to live independently, and their careers will have reached their pinnacle of earnings. Strategically optimizing retirement plans emerges as the most optimal course of action under such circumstances. The contribution cap for individuals engaged in 401(k), 403(b), and comparable retirement schemes will increase to $23,000 as of 2024. Additionally, investors aged 50 and older are eligible to add $7,500 to their accounts. In general, these contributions qualify for a deduction from one’s taxable income.
4. Home Sales and Ownership
Score: 10
Regarding homeownership, borrowers are permitted to deduct the interest and any points paid or incurred during the mortgage application process. Additionally, they are eligible to deduct real estate taxes paid up to $10,000. Although the one-time capital gains exemption tax is no longer applicable, seniors who wish to downsize and sell their homes are still eligible for a capital gains tax exemption of up to $250,000 (or $500,000 for married couples filing jointly) on the sale of their home. They are obligated to have owned and occupied the residence for a minimum of two years before selling it.
3. State Exemptions from Taxes
Score: 11
State income taxes complicate senior citizens’ tax liabilities due to differing tax environments, with some states offering tax benefits and exempting social security income. Moreover, several states provide income-dependent senior tax exemptions.
2. Credit for Lifetime Learning
Score: 12
Students in eligible institutions can claim lifetime learning credit for undergraduate, graduate, and professional degrees, without age restrictions on course costs. The maximum value of this credit per tax return is $2,000.
1. Losses from Casualties and Theft
Score: 13
Many taxpayers qualify for deductions on theft and casualty losses due to exceptional, unique occurrences and not actively involved in the incident. Natural catastrophes such as earthquakes, fires, floods, hurricanes, and cyclones are some examples.
