Many retirees live on a fixed income and paying extra taxes can easily strain their financial well-being. Fortunately, there are deductions that seniors can take advantage of that will help to save money on taxes.
Contributions to Your Retirement Plan – Even after you retire you can still make contributions to your IRA account, or if you are self-employed you can make contributions to your SEP-IRAs or Keogh plans. This serves a double purpose, you get a tax deduction for the contribution, plus you are adding to your retirement funds. Those over 50 can make larger contributions each year, which helps provide tax deductions.
Standard Deductions – If your home mortgage is paid off, you might benefit from using the standard deduction as opposed to the itemized deduction. Those over the age of 65 are entitled to a higher deduction. Figure your taxes both ways, how much you will save with the standard deduction compared to what you would save using an itemized deduction.
Donate to Charity – If it makes more sense for you to use itemized deductions you can deduct donations that you made to charity organizations. Keep in mind that there are some limitations to these deductions; generally you cannot deduct more than 50% of your gross income with charity contributions. If you donate property to a qualified organization, you can deduct the fair market value of that property.
Investment Expenses – If your investment expenses exceed 2% of your adjusted gross income, you can deduct some of these expenses. Examples of qualified deductions include attorney fees, your home computer if it is used for investing purpose, etc. You cannot deduct the fees to brokers for investing in stocks and bonds.
Medical Expenses – This is probably the most beneficial deduction for most retirees due to the fact that many seniors tend to have additional medical costs. Some of the medical expenses that you can deduct include health insurance premiums, prescription medications, long term care facilities, as well as money that you pay out of your own pocket for healthcare.
Home Sales – Many people choose to sell their homes after they retire. The most frequent reason for this is that they simply don’t need a large house any longer and want a smaller place, or to move into a retirement community. Some buy an RV to live in so they can travel in their later years. If you lived in your home for at least two out of the last five years before you sell it, you will not have to pay taxes on the profits as long as they don’t exceed $250,000 for those that are single, or $500,000 for married couples.
If you are retired it is important to take advantage of all of the tax deductions that you are entitled to. The more money you save in taxes the more money you have to enjoy your retirement.
Larry Parman
Attorney at Law
Since founding Parman & Easterday in 1985, Larry has led over 1,000 free, community-service education programs and helped more than 10,000 Oklahoma families go from putting off their estate plan to getting it done. His goal for every client is the same: to become the person their family calls "the one who took care of everything."
Larry is the author of three books: The Straight Shooter's Guide to Estate Planning; Estate Planning Basics; and Guiding Those Left Behind in Oklahoma. He served as Oklahoma's Secretary of State and Secretary of Commerce, and his firm is the only member of the American Academy of Estate Planning Attorneys in the state.
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