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. 

Investment fees

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:

    Accountants

    Attorneys

    Safe deposit boxes

    Personal computers related to making and tracking investments

    Online services 

Business fees

Expenses incurred from owning or starting a business as a retiree also receive deductions depending on the amount of the expense.

Charitable donations

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

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.

A federal tax credit is an immediate reduction in taxes based upon two stipulations – taxes already deducted or benefits received from a state through the tax system. This makes it different from a federal tax deduction which is applied after filing a tax return and only applies to taxable income. The Internal Revenue Service (IRS) makes federal tax credits available for many people who qualify under guidelines established in the Internal Revenue Code. The purpose of these federal tax credits is to provide tax relief for those that need it. One such federal tax credit is made available to the elderly and the disabled.

In order to receive these federal tax credits there are specific eligibility requirements that must be met. Standard requirements are that the applicant must be a United States citizen or a resident alien living permanently in the United State. For the elderly, they must have reached the age of 65 to apply. The IRS defines any person that has reached the age of 65 as an elderly person. Another eligibility requirement for the elderly person is based on their adjusted gross income (AGI) for that tax year. If the taxpayer’s AGI is above a certain annual amount, they are ineligible for the federal tax credit.

         For a single taxpayer filing a tax return, the limit is $17,500.

         For a married couple filing a joint return, the limit is $20,000 if only one partner is eligible. The limit is $25,000 if both partners are eligible.

         For a married couple filing separate tax returns, the limit is $12,500.

         For the head of the household return, the limit is $17,500.

         For a qualifying widow(er) filing a tax return, the limit is $17,500.

These income limitations also apply to disabled persons applying for this federal tax credit.

If the disabled person apply for the federal tax credit is under the age of 65, he or she must be retired on permanent or total disability. This means the person has had to stop working due to a disability that makes the person incapable of gainful employ. Any work done in the year prior to the application for these federal tax credits may disqualify that person. The disabled person must also have received disability payments that can be taxed during the year in which they are applying for these federal tax credits.

Also, if the disabled person is receiving a disability pension through an employer, he or she must not have reached retirement age at the beginning of the tax year. The Social Security Administration mandates the full retirement age based upon the year in which a person is born. For example, if someone is born in 1960 or later, the full retirement age is 67.

A rollover, in regard to individual retirement accounts As a general rule, 401(k) plans rollover into an IRA when the employee reaches retirement age. However, the employee, if changing employment, can leave the 401(k) with the former employer to continue to grow. A 401(k) rollover, depending on which option an employee chooses, has its advantages and disadvantages. The available options include:

         Making a 401(k) rollover as a full distribution in cash. This incurs          Leaving the 401(k) with the former employer. While not a 401(k) rollover, this option allows the retirement plan to be maintained, it does not give the employee control over the fund and it lacks diversity to grow;

         Making a 401(k) rollover into another employer’s retirement plan. This option keeps the funds with the employee but may affect how the funds are invested and how they grow;

         or, Making a 401(k) rollover into an IRA. This presents new options to the employee in how the account is managed, invested, and affected by taxes. This is the option that is most widely used in the United States.

An IRA rollover is the act of transferring the funds in an IRA to either another IRA or into a 457 planThere are strict guidelines set by the IRS which include:

         The 60 Day Rule: Any funds that have been distributed for the purpose of an IRA rollover must be transferred within 60 days of receiving the funds. If the funds have not been transferred within that time, an extension can be applied for but this treats the funds as income and are then subject to

          The One Year Rule: An IRA rollover can only occur once every 365 days. This means that the funds in IRA-1, for instance, can be transferred into IRA-2 once in a year.

         The Same Property Rule: The funds of an IRA rollover that are transferred must be the same funds that have been distributed. The account holder can take funds out and replace them during the 60 day period, but those funds will be treated as regular income to then be taxed and penalized.

Some forms of long-term care/long-term accommodations are somewhat limited by their scope. For example, going back to group homes once more, the nature of the physical structure of the residence and the relationship between its inhabitants determine to a large extent this classification. Other kinds of group-based, long-term accommodations, meanwhile, are not limited merely to one residential building or center.

On the contrary, they encompass quite a bit of space, and commonly, multiple different forms of long-term care at that. These setups which are familiar to many despite never having set foot/one in one are known as retirement communities. Some notes about what a retirement community is and why seniors might opt for this solution: 

A retirement community, generally speaking, is a separate area (as opposed to a retirement home, which is contained in one edifice) representing multiple apartment/housing complexes and other amenities. Depending on the stated purposes of retirement communities, they may be very different from one another.

Some communities, for example, might really not constitute long-term care as they offer nothing in the way of health services and allow for complete autonomy on the part of their residents; some refer to these as independent living communities. Often, though, a retirement community will feature some bit of close-to-home health care, including facilities expressly designed for skilled nursing

In terms of trends in retirement communities, there certainly are recurring characteristics of these entities. In America, while these communities may pop up virtually anywhere across the country, a considerable number of them tend to be centered in the southern United States, notably in states like Arizona, California, Florida, and Texas undoubtedly because of the warmer climes.

A particular retirement community may boast any number of premium services to the people who reside there, but again, they are not contained within a common area as in a retirement home. These resources may include any combination of the following: art classes, golf courses and clubhouses, hiking/walking trails, shopping, swimming pools and tennis courts.

Of course, retirement communities do not come for cheap. As with entry into a retirement home, rent is potentially anywhere from $600 to $3,000 per month, depending on how luxurious, for lack of a better word, the services are. On top of this, however, an upfront entry fee might make living in a retirement community quite an exclusive engagement, as some communities will charge hundreds of thousands of dollars just to secure a lot within. It likely goes without saying that retirement communities are generally reserved for more affluent individuals and couples who actually have the means to retire and live comfortably.