If you’re a Baby Boomer 50 or older, there are some tax deductions that can work in your favor. Even if you plan on working well into your 50s and beyond, there are some tax deductions you can enjoy now.
This is just a general overview; remember to consult a tax professional if you have questions regarding your specific tax status.
Medical/Dental Expenses deduction
If you itemize your deductions on Schedule A of your federal return, you may be able to claim some of your medical and dental expenses. You would only be able to claim medical and dental expenses in excess of 7.5% of your Adjusted Gross Income or AGI. If you are 65 or older beginning in 2017, you will only be able to deduct any medical and dental expenses in excess of 10% of your AGI.
Retirement Plan Contributions
Taxpayers over 50 enjoy a higher contribution limit for Roth IRAs, traditional IRAs and 401(k) plans. If you are self-employed and contribute to a SEP-IRA, Simple IRA or a solo 401(k), the higher contribution limits will apply once you reach 55.
While contributions for a Roth IRA are taxable, withdrawals are tax-free.
As you age and shift your income source from wages to social security and investment income, your deduction options don’t disappear along with your wages. Dividends and capital gains from investment are taxed at a lower rate than ordinary income, with tax ranging from 0-20%, depending on your tax bracket. Better yet, unlike earnings from employment or a business, investment income won’t be subject to Medicare and Social Security tax.
There are a series of investment-related deductions that apply if they, along with your other deductions, exceed 2% of you AGI:
- Attorney or accounting fees
- Online investment service fees
- Home computer used for investment purposes
- Financial planning fees
- Fees paid to a bank, broker or other third party for the purpose of aquring investment property such as stocks and bonds. Some restrictions do apply, so check with your tax pro regarding this deduction.
While not limited to adults over 50, charitable contributions can be itemized on Schedule A of your federal return. This will come in handy if you’re downsizing or just cleaning out after the kids have moved out.
- Cash contributions: Contributions of up to 50% of your AGI are eligible each year as an itemized deduction on Schedule A of your federal return.
- Property other than cash: Clothing, household goods, bedding, and any other items donated to a qualified charity such as a thrift store or shelter, you will need to estimate the Fair Market Value of the items. The FM¿V will be allowable amount for your deduction.
- Boats, cars, planes, jet skis and similar: In this case your deduction will be limited to the gross sale proceeds to a qualified charity. This rule applies to vehicles with a claimed value of $500.00 or more.
As with any itemized deductions, hang onto those receipts…you will need them come tax filing day. Keep them tucked away where they will be easy to reach when it comes time to file your taxes.
As with any specific tax questions, always check with a qualified tax pro, especially if this is your first year of retirement or you are planning to retire soon. Other deductions may also apply, depending on your home ownership status, tax bracket and other factors. Even though you may be staying in the workforce much longer than your parents did, there are still tax deductions tailored to adults over 50 that you can enjoy even before you retire.
Tomorrow: What to do if you are an older adult facing tax collection.