The days are quickly dwindling leading up to April 18th, AKA “tax day.” If you’re in the habit of waiting until the last minute to file your taxes, you’re not alone.
In fact, a full third of Americans procrastinate until the bitter end, according to the IRS. There is a bright side, however. If you haven’t yet filed you can still take advantage of these seven money-saving deductions for seniors.
Top tax return tips for seniors
1. Medical and dental expenses
People can get a deduction for medical expenses at any age, but most younger taxpayers aren’t eligible because their expenses aren’t high enough to qualify. For seniors who incur greater medical costs while living on lower, fixed incomes, meanwhile, meeting the 7.5 percent threshold of adjustable gross income is much easier. Qualifying expenses include insurance premiums, prescription drug bills, wheelchairs, dentures, and many others. More information is available on medical expenses and deductions is available at the IRS website.
Wondering whether your medical alert system is tax deductible? While the IRS doesn’t specifically speak to medical alert systems, many medical alert system-related expenses are deductible, such as the installation of special equipment for medical purposes and medical expenses “paid to a plan that keeps medical information in a computer data bank and retrieves and furnishes the information upon request to an attending physician.”
2. Home sales
Many seniors sell their homes with the aim of downsizing during retirement. If you’ve lived in your home for a long time, you may have amassed a significant amount of equity and therefore made a large profit from the sale of your home. While you may think this windfall will amount to a higher tax bill, you may be pleasantly surprised. According to Nolo, “As long as you live in your home for at least two out of the five years before you sell your house, the profit you make on the sale — up to $250,000 for single taxpayers and $500,000 for married taxpayers filing jointly — is not taxable.”
3. Investment expenses
Many retirees earn the majority of their income from investment interest, dividends and capital gains, which are taxed at lower rates than ordinary income, and aren’t subject to Medicare or Social Security. But did you know that you can deduct fees for everything from accounting services to investment advice if they exceed two percent of your adjusted gross income? Other deductible investment-related expenses may include safe deposit box fees, fees for online services, subscriptions to investment newsletters, and home computers used for investment activity.
You cannot, however, claim brokerage fees used in the acquirement of stocks, bonds, and other investment properties. Instead, these must be added to the cost of the property and recouped at the time of sale.
4. Tax-deductible retirement plan contributions
Retirement plan contributions aren’t just the domain of the younger. Not only can people over the age of 50 still make tax-deductible contributions, but the contribution limits are often higher.
5. Business expenses
Are you still running a business in retirement? Or maybe you recently started a new consulting business or other professional venture? If so, both part-time and full-time work may qualify you for tax deductions across everything from business travel to business equipment. If you have your own business, you can also establish retirement plans with more favorable contribution limits for people over the age of 55.
6. Charitable donations
If you're like many older adults, you may have found yourself better positioned to give back to your community through contributions of time, property or money. Cash contributions can be deducted every year up to 50 percent of adjusted gross income, while non-cash donations are typically deducted at fair market value. Deductions of donations of cars, boats, and airplanes, however, are limited to gross proceeds from its eventual sale if the claimed value is more than $500.
7. The standard deduction
If you’re not planning on itemizing your deductions, the standard deduction may work out in your favor. Why? Because anyone over the age of 65 qualifies for a special higher standard deduction. Even if you turned 65 on December 31 of the tax year, you're still eligible for the deduction.
One last thing to keep in mind? If you’re struggling with figuring out how to do your taxes, you’re not alone. The good news is that help is available. The AARP Foundation sponsors Tax-Aide, which offers free tax preparation help to people aged 50 and over. Tax-Aide has helped just under 50 million low to moderate-income taxpayers since the volunteer-based program was founded in 1968, and currently has more than 5,000 locations in banks, malls, libraries, and senior centers all over the country. You don’t even need an AARP membership to take advantage of this free service.
Additionally, don’t forget about time-saving options like e-filing and direct deposit. Using these methods can significantly reduce the amount of time you have to wait before receiving your refund.
Unfortunately, many seniors make the same tax filing mistakes or oversights, which can cost them hundreds or even thousands of dollars. With these seven tips, you can cover your tax preparation bases and file with confidence. For more legal and financial help for seniors, be sure to sign up for our newsletter.