Are you aware of these potential tax breaks and tax-saving opportunities?
Provided by Taylor McClish
The federal government offers some major
tax breaks for older Americans. Some
of these perks deserve more publicity than they receive.
At age 65, the Internal Revenue Service
gives you a larger standard deduction.
For 2020, standard deductions look like this for taxpayers 65 and older: single
filer or married filing separately, $14,050; head of household, $20,300; married
filing jointly or qualifying widow(er), $26,100 (when one spouse is 65 or
older) or $27,400 (when both spouses are 65 or older). The standard deductions
for younger taxpayers range from $1,650-$2,600 less.1
There are two situations where your standard deduction may be limited
at age 65 or older, or disappear entirely. One is when another taxpayer claims
you as a dependent. The other is when you are married and filing separately,
and your spouse itemizes deductions.1
You may be able to write off some
medical costs. The I.R.S. will let
you deduct qualifying medical expenses once they exceed 7.5% of your adjusted
gross income (AGI). The list of eligible expenses is long. Beyond out-of-pocket
costs paid to doctors and other health care professionals, it also includes
things like insurance premiums for extended care coverage, 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. This exclusion is only allowed once every two years.3
Low-income seniors may qualify for the
Credit for the Elderly or Disabled. This
incentive, intended for people 65 and older, 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.4
Affluent IRA owners may want to make a
charitable IRA gift. Generally, once
you reach age 72, you must begin taking required minimum distributions (RMDs)
from a traditional IRA. You may not be looking forward to these annual
withdrawals, especially if you are well off. You have another option: you can
make a Qualified Charitable Distribution (QCD) using those traditional IRA
assets.5
You can donate up to $100,000 of traditional IRA assets to a qualified
charity in a single year this way, and the amount donated counts toward your
required withdrawal. The amount of the QCD is excluded from your gross income
for the year of the donation. Eligibility to make a QCD still begins at 70½, even though the
Setting Every Community Up for Retirement Enhancement (SECURE) Act raised the
starting age for annual traditional IRA distributions from 70½ to 72.5
It must be mentioned that withdrawals from traditional IRAs are taxed
as ordinary income (and, if taken before age 59½, may be subject to a 10%
federal income tax penalty).
Of course, 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.6
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.7
Taylor McClish may be reached at (503) 239-3060 or Taylor.McClish@cunamutual.com
This information is not intended to be a substitute for specific
individualized tax advice. We suggest that you discuss your specific tax issues
with a qualified tax advisor.
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
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 -
efile.com/tax-deduction/federal-standard-deduction/ [1/20/20]
2 - thebalance.com/deducting-medical-expenses-retirement-2894613
[11/4/19]
3 - investopedia.com/ask/answers/06/capitalgainhomesale.asp
[2/16/20]
4 - thebalance.com/tax-breaks-for-seniors-and-retirees-4148392
[1/14/20]
5 - giving.princeton.edu/giftplanning/current-ira-gifts
[2/18/20]
6 - thebalance.com/state-income-taxes-in-retirement-3193297 [7/15/19]
7 - smartasset.com/retirement/is-social-security-income-taxable
[1/16/20]