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When her husband Charles passed away in 2015, Marie Bailey found herself in a tax bind.
“I never did any of our taxes,” Marie said. “I helped Charles with the math sometimes, but outside of that, I had no idea how to file an income tax return.”
The IRS code requires the expertise of the highest skilled CSI to figure out what you have to do to file a clean return. What is even more complex are the countless tax breaks that fall within the IRS code cracks.
Seniors like Marie Bailey have several tax breaks they can use to save money, and they do not even have to hire a Certified Public Accountant to enjoy the financial windfall provided by the tax breaks.
The first senior tax break to take involves the standard deduction, but you enjoy this tax break only if you do not itemize your income tax deductions. Seniors who turn 65 can take a larger standard deduction that a tax filer who is younger than 50. If you vision falls below 20/20, you might be able to increase the standard deduction. In 2017, the standard deduction for an individual is $6,350, which represents a $50 increase from 2016. Couples filing joint federal income tax returns can deduct $12,700.
Considered one of the best tax breaks available for seniors, deducting contributions made to an IRA and/or 401k retirement plan can remove a large chuck of a senior’s tax burden. The reason is seniors enjoy higher contribution limits than Americans under the age of 50. For example, a married couple over 50 years of age can put away as much as $12,000 per year in a retirement account. Retirement contributors under 50 years old can only contribute $10,000 per year.
The aging American population combined with soaring health care costs has prompted the United States Congress to write in generous income tax deductions for senior medical expenses. To enjoy healthcare expense deductions, you have to use Schedule A to itemize all of your deductions. Seniors can deduct medical and dental expenses that exceed 7.5% of adjusted gross income (AGI). When you consider the average senior pays about 30% of his or her income to healthcare costs each year, this deduction is a great way for seniors to save money.
Charity Begins at Home
Retirement often prompts seniors to consider increasing charitable contributions. You deduct contributions to charity on the itemized deduction Schedule A form. Seniors can deduct charitable cash donations up to 50 percent of the AGI. If you donate property, such as a vehicle or second home, you can deduct the fair market value of the property. Seniors who donate property for a charitable auction must deduct the gross proceeds generated by the sale of the property.
Home Sweet Home Sold
Many seniors opt to move from a large home to a more manageable small home. You also might want to sell your home for a move to a warmer climate. If you lived in the home for at least two of the five years preceding the sale of the home, you might not have to pay taxes on the profit realized by an increase in home equity. The IRS code allows married couples to earn up to a $500,000 profit free of federal income taxes.
Despite congressional attempts to simplify the tax code, filing an income tax return remains one of the most frustrating things we have to do in this life. For seniors who want to avoid the hair puling triggered by filing out a form 1040, take advantage of five easy to perform tax breaks to give your more financial resources during retirement.