For Mark Roberts’ Use: Retirement often brings about new confusion in regard to federal taxes. Now that your income comes from retirement account distributions instead of a paycheck, you might be unclear on which tax deductions are still available to you. To add to the headache, Congress is always changing the tax code. It can be difficult for some retirees to know which deductions are still available to them.
Tax deductions lower your amount of tax liability, or the amount you will have to pay to the IRS. Many Americans overlook simple deductions, and are actually paying more taxes than they should really owe! To make sure you’re reaping the benefit of all available deductions, remember to check on the following common deductions at tax time:
- State and local sales tax
- Child tax credit – Most retirees have grown children, and therefore cannot claim this credit. If you have an adult disabled child, however, you are still eligible to claim this deduction in many cases
- Charitable contributions
- Student loan interest – if you’re still paying for college loans (either for yourself or children), remember to take this deduction
- Points on home refinancing
- Health insurance premiums
- Tax preparation services
- Un-reimbursed medical and dental expenses – certain limits apply. If you’ve recently turned 65, the rules have changed for you, and you can deduct more of these expenses than in the past. Talk to your tax professional.
At the end of the year, take a look at your out-of-pocket medical expenses. If you’re close to the threshold at which point you can start claiming expenses as deductions, it might be smart to go ahead and schedule procedures that you might otherwise have put off until the next year. This way you’ll have a greater deduction. On the other hand, if you’re nowhere close to the threshold anyway, it might make sense to postpone any non-urgent medical expenses until the next year, so you’ll have a better chance at being able to use them as deductions on that year’s tax return.
Some tax deductions disappear as adjusted gross income increases. If your income is higher than it was pre-retirement, you may notice that certain deductions are no longer available to you. On the other hand, if your income is lower now that you’ve retired, you could be pleasantly surprised by the availability of deductions you can’t utilize in the past. Plan ahead by having an ongoing conversation about tax deductions with your tax professional, and you can maximize your savings at tax time each year.