What Are The Tax Deductions for Seniors
In the United States, being a senior citizen allows for the receipt of certain tax deductions under the Internal Revenue Code as administered by the Internal Revenue Service (IRS). These deductions help to better plan for retirement and to save money for other expenses. Aside from itemized deductions, there are seven other deductions, including standard deductions, that benefit senior citizens as they enter retirement. An itemized deduction is the process of listing taxable items from a person’s adjusted gross income (AGI) and removing them from that income in order reduce income taxes. The list of items that can be deducted in an itemized deduction is set by the IRS in the Internal Revenue Code.
The seven most widely used tax deductions by senior citizens to adjust their federal and state taxes are as follows:
Medical and Dental expenses
The elderly often incur high expenses from medical and dental care. Some medical and dental services are able to be subtracted from federal and state taxes including expenses from prescription medications, receiving care from a nursing home or outpatient care facility, premiums from health insurance plans, or any other medical expenses that are paid out-of-pocket.
Selling a residence
Many senior citizens opt to sell their house in order to find a smaller residence or live in an assisted living facility. If the owner has lived in the home for at least two out of the five years prior to the sale of the house, any money made from the sale is not taxable by the IRS up to a limit. If a single taxpayer sells their home, money received up to $250,000 is not taxed. If married taxpayers sell their house, money received up to $500,000 is not taxed.
Retirement plan funds
Contributions to a retirement plan such as a traditional IRA or 401(k) are not taxed by the IRS. Also, after reaching the age of 50, the limit to how much the account holder can contribute is increased to help save for retirement.
Income from investments are generally taxed from 5 percent up to 15 percent but are not taxed by the Social Security taxes or Medicare taxes. Also, fees incurred from the following services can be deducted:
Safe deposit boxes
Personal computers related to making and tracking investments
Expenses incurred from owning or starting a business as a retiree also receive deductions depending on the amount of the expense.
Donations made to charitable organizations that are up to 50 percent of the AGI of the donor are deductible. This applies to cash, vehicles and property that are donated.
Standard deductions are any dollar amount that can be subtracted from a taxpayer’s AGI when filing a tax return. This is different from an itemized deduction as the taxpayer is not choosing from a list of deductions but rather an amount that is set by the IRS. Another difference between an itemized deduction and a standard deduction is the amount of money that the taxpayer puts down on the tax return form. The amount of the return from a standard deduction is higher if the taxpayer is over the age of 65 or if both partners in a married couple are over the age of 65.