Putting You First... Always.

 

We’re here to help now

+
 
-

Give me my FREE Annual Rx checkup

Taxes & Seniors

Top Tax Deductions & Considerations for
Seniors and Baby Boomers

Ways for seniors to save money during this tax season.*

 

At some point in a person’s life, they must start paying taxes. After years of working and paying taxes, most individuals retire and think that they don’t have to worry about filing their annual income taxes. Unfortunately, that reality is false. (I know, I know. Sorry to be the bearer of bad news!)

The government imposes income taxes to determine whether an individual or business owes an amount of money to the federal government. The government uses these funds to operate it’s activities and serve the public by providing programs like Medicare.

Special Note for 2017 Tax Filing Season

We all dread April 15 for good reason: It’s the tax filing deadline for most years.

However, in 2017, we have a different date to pay special attention to: April 18. Due to April 15 falling on a weekend and Emancipation Day, a legal holiday in Washington DC, the Internal Revenue Service has pushed back the 2017 tax filing deadline to April 18. 

In other words, your 2016 taxes must be filed and debts must be paid by Tuesday, April 18, 2017. Be sure your tax returns are post-marked by then!

Top Deductions for People Over 50 Years Old

Despite that it is necessary for people to file and pay their taxes, there are ways for retired seniors to reduce the amount they owe to the federal government.

Medical & Dental Expense Deductions

Accrued medical and dental expenses are usually the largest financial burden that seniors must face. Thankfully, some of these expenses can be deducted from their taxes such as: premiums from health insurance, Medicare, prescription costs, nursing home care, certain dental procedures, and several other out-of-pocket expenses. premiums from health insurance and Medicare, prescription costs, nursing home care, certain dental procedures, and several other out-of-pocket expenses.

For example, let’s say you needed radiation treatment for your oral cancer. Because of the treatment, you need a dental procedure to remove certain teeth from your mouth. Medicare covers the dental procedure because it was medically necessary, however it won’t cover other parts like implants. In some cases, the implants can be itemized and be counted as deductions on your income taxes.

Deductions from Selling Your Home

Most seniors sell their homes when they are no longer able to keep up with the upkeep and maintenance If they have lived in that home for a certain amount of time, they are likely to have substantial equity and can earn a good profit upon the sale of the home. Additionally, seniors may not have to pay a tax on the profit earned. If they have lived in that home for at least two of the five years before its sale, the profit is not taxable (up to $250,000 for single taxpayers and $500,000 for married taxpayers filing jointly).

Retirement Plan Contributions

 

Retirement Plan Contributions
Retirees can make tax-deductible contributions to retirement plans like IRAs, despite being already retired or being semi-retired (like working part time at your job now instead of full time). Additionally, you can contribute to a Roth IRA. You must pay the taxes on the amount you contribute but the withdrawals are tax-free. Because of this, your Roth IRA investments earned income and paid interest are tax-free. Also, retirees who own their own business can establish SEP-IRAs, simple IRAs, Keogh plans and solo 401(k) plans. These plans have higher contribution limits for individuals over fifty-five years old.

Deductions from Investment Expenses

When you are a retired senior, you can still earn money from interest, dividends, and capital gains from investments. These ways of earning have lower tax rates when compared to ordinary ways of income and not subjected to taxes from Social Security or Medicare.

If retired seniors are interested in financial advice or accounting services for their investments, the fee for the services are deductible (to some extent) alongside other itemized personal deductions. However, they must not exceed 2% of your adjusted gross income. These services include things like:

  • Safe deposit box fees
  • Accountant fees
  • Home PCs made for investment purposes
  • Online service fees

It should be noted that you cannot deduct fees from paying a broker to acquire stocks and bonds. You must also pay a fee to the costs and recoup the expenses when you sell the stocks and bonds.

Deductions from Business Expenses

Retired seniors can still earn income by running their own businesses or starting new ones. Expenses they need to pay for their business can be deducted, if they are a reasonable amount. This includes expenses like business equipment, travel expenses and paid lunches for employees.

For example, if a retired senior wants to own a computer repair service, he can deduct the costs of the PCs and cash registers on his taxes.

Charitable Contributions are Deductible

During their senior years, many people think about giving back to society by making donations and charitable contributions. These contributions are deductible and can be itemized while filing on an annual income tax; however, there are limits. Cash contributions can only be up to half of a person’s adjusted gross income.

Non-cash donations/contributions, like property, can be deducted at the fair market value of the property. If the property has appreciated in value, there will be necessary adjustments. Donating items like vehicles is limited to gross proceeds of its sale by an organization, provided the value of the donation is over $500.

Standard Deductions While Filing

This type of deduction is applicable if your deductions are itemized. Any individual that is 65 and older by the end of the year are entitled to a higher standard deduction. In addition, these individuals (and those who are blind) can get an additional standard deduction. This can be claimed if your spouse is also older than 65 and the both of you file a joint return. To find more about standard deductions, the IRS website has a page with all the necessary guidelines for standard deductions.

Medicare and Taxes

In November of 2013, the IRS implemented the Additional Medicare Tax as an added part of the Affordable Care Act (also known as Obamacare). The additional tax applies to wages, railroad retirement compensation, and self-employment income on certain thresholds. In some instances, employers must withhold the tax on wages and RRTA compensation (Railroad Retirement Tax Act). Currently, the rate of the Additional Medicare Tax is 0.9%.Medicare and Taxes

All wages earned from individuals (including seniors) are subjected to the standard Medicare Tax is also subjected to the Additional Medicare Tax, provided they are paid more than the applicable threshold for their filing status.

  • Married filing jointly – $250,000 threshold
  • Married filing separate – $125,000 threshold
  • Single Individual – $200,000 threshold
  • Head of household (with qualifying person) – $200,000 threshold
  • Qualifying widow(er) with dependent child – $200,000 threshold

Resources Regarding Medicare and Taxes

Understanding the correlation between Medicare and Taxes can be overwhelming. However, there are several online resources that can help you understand the Medicare tax. Many people choose to consult with a tax preparer and pay a small fee to ensure their taxes are completed properly. These sources can help you figure out certain situations like who is responsible for calculating and deducting the taxes from the wages and what to do with the Medicare tax in case you are self-employed or a non-resident.

If you do your research and correctly calculate your wages, contributions, donations, and taxes, you should be living your senior lifestyle with financial ease while being fully covered by the benefits of Medicare.

Then you can use all that money you saved towards your next vacation!

 

*None of the tax information provided is meant to replace the advice of an experienced tax preparer. Please contact your tax preparer or the IRS with any additional questions.
My Medicare Partners Logo
5319 10th Ave N, Greenacres, FL 33463
Social Media
Disclaimer
Your privacy is of utmost importance to us. We will never share your personal information without your permission, and we will never spam you.

Copyright © 2018 My Medicare Partners, Inc. All Rights Reserved.

Pin It on Pinterest

Shares
Share This