Whenever we reach the age of retirement, we need to be more careful with our finances than when we were still employed, whether it was by someone else or if we had our own business. When it comes to tax planning, there are several deductions that senior citizens and retirees alike should be aware of, as they could take advantage of these deductions and reduce their tax bills. Some of these useful deductions include medical and dental expenses, charitable contributions, retirement plan contributions, and selling your house.
Regardless of our age, medical and dental expenses are a part of our everyday life, as we need to get general check-ups, treatments for common or serious conditions, and nobody is immune to the occasional dental cavity. However, we all reach an age on which we must be more mindful of our health and paying a visit to our doctor becomes more and more common. Even when this means that we will be spending more on medical bills, we are able to take advantage of this tax deduction on our income. For 2019, the IRS allows taxpayers who itemize their deductions to include the total of our medical bills that exceed 10% of our adjusted gross income.
For many retirees and senior citizens, this is the perfect time to give back to their communities, and it is quite common for them to support different local, state, national, and even worldwide organizations. This brings many benefits, as you are able to lend a helping hand to those who need it the most while being able to reduce your tax bill quite a bit. Just as it happens with medical and dental expenses, in order to take advantage of this charitable contribution deduction, we need to itemize our deductions instead of choosing the standard deduction. Also, we need to remember that all our cash contributions must remain below 60% of our adjusted gross income in order to qualify for the deduction.
Part of preparing for the future includes making contributions to a retirement plan that will allow us to be financially stable when we are ready to enjoy our golden days. Whether we decide to open a traditional IRA, a Roth IRA, or a 401(k) plan, we are able to make tax-deductible contributions to those accounts. Depending on our age, we will have different contribution limits, but those over 50 have higher limits than those who haven’t reached that age yet. Just remember that you’ll pay taxes on the contributions that you make, but whenever you start withdrawing money from these accounts, interests and income generated are tax-free.
Selling our house and moving to a smaller place once our children have moved to their own place makes a lot of sense, as it can help us reduce the amount of work needed to keep our house clean and tidy, as well as reducing the expenses of having such a property. Even when it might be hard for some to make this decision, we should remember that the profit we get from the sale is completely tax-free, and if we lived there for a long time, we probably have substantial equity, which means we should earn a large profit. Just make sure you have lived there for at least 2 out of the 5 years before the sale, and that your profit doesn’t exceed $250,000 for single taxpayers and $500,000 if you’re married filing jointly so that the profit can remain non-taxable.