Are
you aware of them?
The federal government offers some major
tax breaks for older Americans. Some
of these perks deserve more publicity than they receive.
If you are 65 or older, your standard
deduction is $1,300 larger. Make that
$1,600 if you are unmarried. Thanks to the passage of the Tax Cuts & Jobs
Act, the 2018 standard deduction for an individual taxpayer at least 65 years
of age is a whopping $13,600, more than double what it was in 2017. (If you are
someone else’s dependent, your standard deduction is much less.)1
You may be able to write off some
medical costs. This year, the
Internal Revenue Service will let you deduct qualifying medical expenses once
they exceed 7.5% of your adjusted gross income. In 2019, the threshold will
return to 10% of AGI, unless Congress acts to preserve the 7.5% baseline. The
I.R.S. list of eligible expenses is long. Beyond out-of-pocket costs paid to
doctors and other health care professionals, it also includes things like long-term
care insurance premiums, travel costs linked to medical appointments, and
payments for durable medical equipment, such as dentures and hearing aids.2
Are you thinking about selling your
home? Many retirees consider this. If you have lived in your current
residence for at least two of the five years preceding a sale, you can exclude
as much as $250,000 in gains from federal taxation (a married couple can shield
up to $500,000). These limits, established in 1997, have never been indexed to
inflation. The Department of the Treasury has been studying whether it has the
power to adjust them. If modified for inflation, they would approach $400,000
for singles and $800,000 for married couples.3,4
Low-income seniors may qualify for the
Credit for the Elderly or Disabled. This
incentive, intended for people 65 and older (and younger people who have retired due to permanent and total disability), can be as
large as $7,500 based on your filing status. You must have very low AGI
and nontaxable income to claim it, though. It is basically designed for those
living wholly or mostly on Social Security benefits.5
Affluent IRA owners may want to make a
charitable IRA gift. If you are well
off and have a large traditional IRA, you may not need your yearly Required
Minimum Distribution (RMD) for living expenses. If you are 70½ or older, you have an option: you can make a
Qualified Charitable Distribution (QCD) with IRA assets. You can donate up to
$100,000 of IRA assets to a qualified charity in a single year this way, and
the amount donated counts toward your annual RMD. (A married couple gets to
donate up to $200,000 per year.) Even more importantly, the amount of the QCD
is excluded from your taxable income for the year of the donation.6
Some states also give seniors tax
breaks. For example, the following 11
states do not tax federal, state, or local pension income: Alabama, Hawaii,
Illinois, Kansas, Louisiana, Massachusetts, Michigan, Mississippi, Missouri,
New York, and Pennsylvania. Twenty-eight states (and the District of Columbia)
refrain from taxing Social Security income.7
Unfortunately, your Social Security
benefits could be partly or fully taxable. They could be taxed at both the federal and state level, depending on
how much you earn and where you happen to live. Whether you feel this is reasonable
or not, you may have the potential to claim some of the tax breaks mentioned
above as you pursue the goal of tax efficiency.5,7
Taylor McClish may be reached at (503) 239-3060 or Taylor.McClish@cunamutual.com
This material was prepared by MarketingPro, Inc., and does not
necessarily represent the views of the presenting party, nor their affiliates.
This information has been derived from sources believed to be accurate. Please
note - investing involves risk, and past performance is no guarantee of future
results. The publisher is not engaged in rendering legal, accounting or other
professional services. If assistance is needed, the reader is advised to engage
the services of a competent professional. This information should not be
construed as investment, tax or legal advice and may not be relied on for the
purpose of avoiding any Federal tax penalty. This is neither a solicitation nor
recommendation to purchase or sell any investment or insurance product or
service, and should not be relied upon as such. All indices are unmanaged and
are not illustrative of any particular investment.
Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC,
a registered broker/dealer and investment advisor. CBSI is under
contract with the financial institution to make securities available to
members. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution. CUNA Brokerage Services, Inc., is a registered broker/dealer in all fifty states of the United States of America.
Citations.
1 - fool.com/taxes/2018/04/15/2018-standard-deduction-how-much-it-is-and-why-you.aspx
[4/15/18]
2 - aarp.org/money/taxes/info-2018/medical-deductions-irs-fd.html
[1/12/18]
3 - loans.usnews.com/what-are-the-tax-benefits-of-buying-a-house
[10/17/18]
4 - cnbc.com/2018/08/02/some-home-sellers-would-see-huge-savings-under-treasury-tax-cut-plan.html
[8/2/18]
5 - fool.com/taxes/2017/12/31/living-on-social-security-heres-a-tax-credit-just.aspx
[12/31/17]
6 - tinyurl.com/y8slf8et [1/3/18]
7 - thebalance.com/state-income-taxes-in-retirement-3193297 ml
[8/15/18]
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