Have you reached that Senior Citizen status?
Congratulations, that is a big accomplishment!
You are now a “classic”!
Embrace the fact that you can get discounts just about everywhere you go now.
This in the long run will save you lots of money.
Join club memberships that promote and help you solve senior issues and problems. Pull out those membership cards with pride and get those discounts.
At this stage in life, you deserve the break.
How about getting a break on your income taxes? That is always a good thing. Every senior citizen can use the extra money that is saved by not having to pay deeply on your income taxes each year.
So if you are retired or about to, you need to understand and take advantage of the deductions available to you each income tax year.
In this article we will go over just a few of those tax beaks available to you and explain how you can do just that.
Increasing Expenses, Medical and Dental
Unfortunately one of the largest expenses for the senior citizen is healthcare. Medical and dental expenses will go up as we age because of our need to visit the doctor more and we will tend to have more issues or complications with old age.
Fortunately, most of these expenses can be deducted when we fill out income taxes.
The IRS (IRS Publication 502) defines these expenses as:
- Prevention of diseases
- Treatment for any structure or function of the body
- These expenses even include:
- Even Christian Science practitioners
All of these will be out of pocket money you spend for:
- nursing care
- lab fees
- long term care.
You can also deduct things such as transportation cost for health treatment and the cost of remodeling your home to accommodate a handicap such as wheelchair ramps.
Unfortunately, you can only deduct the expenses that are more than your specified percentage of your adjusted cross income (10%). The adjusted gross income is the amount of taxable income minus deductions (itemized) for retirement contributions and 1/2 of your self-employment taxes if that applies.
This percentage was raised from 7.5% to 10% in 2013. People over 65 at that time were grandfathered from this increase until the end of 2017.
Selling Your House After You Retire?
My wife and I are about to get into a RV and tour the USA. We do not plan to sell our home at this point, but who knows what the future might bring.
You will find this section very interesting.
When some people retire, they decide to sell the home they raised their children in to either move or downsize.
During your adult live you knew that when you sell a home, you need to re-invest the equity into another home or you would be taxed on that profit you made from the sale of the home.
If you are retired and receiving retirement benefits, you can sell your home and not be taxed on that equity (exemption from capital gains).
The guidelines are as long as you lived in the home for at least 2 years out of 5 before you sell the home, the profit you make on this sale up to:
- Single taxpayer up to $250,000
- Married filing jointly, up to $500,000
Simple enough? No!
How is the gain calculated for this deduction?
It is the home’s selling price minus deductible closing costs, selling costs, and your tax basis for the property. This tax basis is the original purchase price plus purchase expenses cost of capital improvements minus any depreciation or casualty losses/insurance payments.
Leave it up to the IRS to complicate this for you! See more at the IRS Publication 551.
Deduct Your Fees, Investment Expenses
Unless you are getting a government pension or such, it is very likely that your retirement income is based on investments that you or your financial advisor are managing.
Most will get their retirement income from the interest, dividends, and capital gains from these investments. The other source of income will more likely be social security benefits.
You and your advisor need to understand the deductions you can take as long as these expenses are more than 2% of your adjusted gross income.
Examples of these expenses are:
- attorney and accounting fees
- safe deposit box fees
- fees for online services
- subscriptions to investment newsletters
- home computers used for investment purposes
- financial partner fees
- other fees you might pay to a broker, bank, trustee, agent to collect investment income
Exclusions from these deductions include:
- investment broker fees for investment properties
Working From Home? Business Expenses
Today, I have decided to follow a path that allows me to start a business and work from home or anywhere I have an internet connection.
As I am new to this, I will be very interested in knowing what I can identify as a business expense and deduct those when tax day arrives. Many people that retire are dong the same thing as this allows them to stay active and productive.
Here are some guidelines you can use:
- Deduct all necessary expenses related to your business as long as they are within a reasonable amount.
- Business travel
- Cost of business equipment, computers, printers
- Area of your home used for business reason.
The tax codes allow you the business person to deduct cost associated with doing business from your gross income.
This leaves you with your net business profit. This is the amount that gets taxed.
You can take advantage of this by maximizing your deductible business expenses which in turn lowers your taxable profit.
So in order to stay out of trouble with the IRS, you need to further understand what exactly is deductible. This can be found in section 162 of the tax code.
The IRS says that all the expenses must be “ordinary and necessary”. Further research into this government code will only confuse you, so it may be better to engage a tax lawyer that specializes in the small business tax deduction codes.
I know I will as my business accelerates.
Take Advantage Where You Can!
Have you heard of NOLO?
You can see NOLO’s tax products here.
This site is similar to Legal Zoom as it is a depository of self-help and DIY (do it yourself) products that include online legal forms, online documents, books and eBooks, and software.
This is an excellent place if you are inclined to do the DIY approach to your legal business.
I have found this site a treasure trove of information and DIY products that I can get online to assist me in my business adventure.
I hope you have found this article informative and helpful.
I would love to hear what you think about this by just leaving a comment below. I will get back to you ASAP.
See below if you want more information on my business adventure and how you can get started FREE to see if you would like to be your own boss.
This is the Freedom that is allowing me and my wife to travel and not be grounded to one spot.