Tax Season Tips for Retirees [2020 Retirement Guide]
It’s the time of year again for filing taxes. While no one wants to pay taxes, this is especially true for retirees who may have limited income or are living on a set budget. No matter the situation, there are options for retirees to help reduce taxes owed and possibly come out with a refund.
Here are some tips to help retirees have an easier tax season:
What you will learn:
Free Tax Preparation
Leave the number crunching to the professionals. Free tax preparation is available to people who make $54,000 or less. The Volunteer Income Tax Assistance (VITA) program has IRS-certified volunteers to help people with tax preparation. Those who are 60 years or older may also receive tax help with questions about pension and other retirement-related matters through the Tax Counseling for the Elderly (TCE) program. Locations are available at community and neighborhood centers, libraries, schools, shopping malls and other locations. To locate a VITA or TCE site, call 800-906-9887 or use the online VITA Locator Tool.
Some Medical Expenses Are Tax-Deductible
Medical expenses can include Medicare premiums, long-term care premiums, co-pays at the doctor’s office and the cost of prescription drugs. A deduction on such medical expenses can be claimed in your tax filing if the total out-of-pocket costs exceeds 10% of your adjusted gross income.
Deduct Property Tax and Mortgage Expenses
If you’re a homeowner with an existing mortgage, the mortgage interest and property taxes you pay are deductible in your tax filing. Many times, retirees who are homeowners may also sell their home to downgrade to one that is more suitable for a retirement lifestyle. In that case, there is capital gain exclusion available for up to $500,000.
Certain Donations Are Tax-Deductible
There are many ways to be charitable, including giving away money or donating goods like clothing, a car, or electronic devices to charity. When you itemize the items you donate, you can claim a tax deduction. In some cases, travel to make the donation may also be included in the deduction.
Review “Standard Deduction” or “To Itemize”
The IRS offers the option to file your taxes using a standard deduction or to itemize. The standard deduction for retirees who just turned 65 is $7,900 for a single filer and $15,200 for a couple filing in 2017. The standard deduction is higher for those age 65 and older. Weigh your options in selecting how you want to file your taxes.
Understand How Life Settlement Proceeds are Taxed
If you took a life settlement, you only need to claim income on any proceeds that were more than the cost of the life insurance policy. You can calculate this by subtracting the policy’s cash value from the amount paid in premiums. Learn more about the tax benefits of selling your life insurance policy.
Streamline the Tax Filing Process With E-Filing
If you’re expecting a refund, e-filing your taxes will help speed along the process. One of the benefits of online filing is that there’s no waiting around for a check to come in the mail if you opt for direct deposit, or worse: it getting lost in the mail. Expedite your tax filing by taking care of it electronically.
Tax filing season does not need to be stressful and you can possibly look forward to a refund following some of the tips offered here.