5 Great Tax Deductions and Credits for Retirees

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Via Tina Orem, Nerdwallet

They say that with age comes wisdom. But with age also come a few tax perks.

Once your birthday cake has 50 candles on it, the IRS starts to lighten up a bit. And when you hit 65, the IRS has a few more small presents for you — if you know where to look. Here are five tax deductions and credits you don’t want to miss after you’ve blown out all those candles.

1. A higher standard deduction

If you take the standard deduction instead of itemizing (learn how to decide here), you get a bonus of up to $1,500 if you or your spouse is 65 or older.

Filing status Regular standard deduction Standard deduction, age 65+
Single $6,300 $7,850
Married, filing jointly $12,600 $13,850
Married, filing separately $6,300 $7,550
Head of household $9,300 $10,800

If you or your spouse is legally blind, your standard deduction can increase an additional $1,250.

2. More room to shelter income

Because contributions to a 401(k) are tax-advantaged, the IRS limits how much you can contribute each year. For folks under 50, that limit is $18,000. If you’re over 50, though, you can put in $24,000 per year.

But alas, that assumes that you’re still working and that your employer offers a 401(k) plan.

If you’ve already kissed your cubicle goodbye, you may still be able to contribute an extra $1,000 a year to a traditional IRA or a Roth IRA, if you qualify for a Roth. That’s thanks to the IRS’ catch-up provision for people 50 and older. And remember, you can put money into a traditional IRA until the year you reach age 70½; there’s no age limit on Roth IRA contributions.

» MORE: Traditional IRAs vs. Roth IRAs

3. A bigger deduction for medical expenses

If you itemize, you can deduct unreimbursed medical expenses — but only the amount that exceeds 10% of your adjusted gross income. For example, if your adjusted gross income is $40,000, the threshold is $4,000, meaning that if you rang up $10,000 in medical bills, you could deduct $6,000 of it.

If you or your spouse is 65 or older, however, that 10% threshold dips to 7.5% for the 2016 tax year — netting you a bigger deduction. So for that hypothetical $10,000 in medical bills, that means you could deduct $7,000 instead of $6,000. (Beware, though: the threshold is set to rise to 10% in 2017 unless Congress takes action.)

And if you’ve recently purchased long-term care insurance, you may be able to add in $380 to $4,750 of the premiums, depending on your age (the older you are, the more you can deduct).

One important note: Seniors only get this deal for the 2016 tax year. Starting with the 2017 tax year, the threshold is 10% for everyone.

4. A safety net for selling that empty nest

This tax deduction is available to everyone regardless of age, but it’s especially useful if you’re itching to sell your house and downsize in retirement. The IRS lets you exclude from your income up to $250,000 of capital gains on the sale of your house. That’s if you’re single; the exclusion rises to $500,000 if you’re married.

So, if you bought that four-bedroom ranch house back in 1974 for $100,000 and sold it for $350,000 today, you likely won’t have to share any of that gain with Uncle Sam. There are a few conditions, though:

  • The house has to have been your primary residence.
  • You must have owned it for at least two years.
  • You have to have lived in the house for two of the five years before the sale, although the period of occupancy doesn’t have to be consecutive.
  • You haven’t excluded a capital gain from a home sale in the past two years.

5. More help if you’re disabled

You may qualify for a $3,750 to $5,000 tax credit, depending on your filing status, if you or your spouse retired on permanent and total disability. The credit, called the Credit for the Elderly or the Disabled, goes up to $7,500 if you’re 65 or older.

But be prepared for this one to give you a few gray hairs. First, few people qualify for the credit; most of the time, your Social Security benefits will cause you to exceed the income limits. And if you lived with your spouse during the year, you have to file jointly. Plus, the tax credit is nonrefundable, which means that if you owe $250 in taxes but qualify for a $5,000 credit, you won’t get a check from the IRS for $4,750. But at least you’ll get to enjoy a $0 tax bill.

Tina Orem is a staff writer at NerdWallet, a personal finance website.

8 Pretty Good Things For Seniors To Remember at Tax Time

Tax day, which is April 18th in 2017, is approaching and it is time to begin crossing T’s and dotting I’s in preparation for paying taxes. As tax time draws near, you want to make sure you file all the proper forms and take all deductions you’re entitled to. Following are some things to keep in mind as you prepare your tax form.

elder law nyc

  1. Gifts. Did you give away any money this year? The gift tax can be very confusing. If you gave away more than $14,000 in 2016, you will have to file a Form 709, the gift tax return. This does not necessarily mean you will owe taxes on the money, however.
  2. Medical Expenses. Many types of medical expenses are tax deductible, from hospital stays to hearing aids. To claim the deduction, your medical expenses have to be more than 10 percent of your adjusted gross income.  (For taxpayers 65 and older, this threshold will be 7.5 percent through 2016.) This includes all out-of-pocket costs for prescriptions (including deductibles and co-pays) and Medicare Part B and Part C and Part D premiums. (Medicare Part B premiums are usually deducted out of your Social Security benefits, so be sure to check your 1099 for the amount.) You can only deduct medical expenses you paid during the year, regardless of when the services were provided, and medical expenses are not deductible if they are reimbursable by insurance.
  3. Parental Deduction. If you are caring for your mother or father, you may be able to claim your parent as a dependent on your income taxes. This would allow you to get an exemption $4,050 (in 2016) for him or her.
  4. Long-Term Care Insurance Premiums. Premiums for “qualified” long-term care policies are treated as an unreimbursed medical expense. Long-term care insurance premiums are deductible for the taxpayer, his or her spouse and other dependents.
  5. Social Security Benefits. Although Social Security benefits are generally not taxable, people with substantial income in addition to their Social Security may pay taxes on their benefits. If you file a federal tax return as an individual and your “combined income,” including one half of your Social Security benefits and nontaxable interest income is between $25,000 and $34,000, 50 percent of your Social Security benefits will be considered taxable. If your combined income is above $34,000, 85 percent of your Social Security benefits is subject to income tax.
  6. Home Sale Exclusion. Married couples can exclude from income up to $500,000 in profit on the sale of a home ($250,000 for single individuals). If a surviving spouse sells the home, he or she can still claim the exclusion as long as the house was sold no more than two years after the spouse’s death.
  7. Elderly or Disabled Tax Credit. Some low-income elderly or disabled individuals are entitled to a special tax credit. To be eligible, you must meet income limits. For more information, click here.
  8. Tax Refunds. Getting a federal tax refund should not affect your Medicaid or Social Security benefits. For a year after receiving a tax refund from the federal government, the refund will not be considered income or resources for SSI or Medicaid purposes. You can also transfer the refund within a year without incurring a penalty.

The IRS’s Tax Counseling for the Elderly (TCE) Program offers free tax help to taxpayers who are 60 and older. For more information, click here. The IRS also publishes a Tax Guide For Seniors.

More Free Helpful Legal Guides for Seniors, click here.

No will or estate plan? Big problem for you and your heirs

Estate planning isn’t just for the wealthy. Financial advisors say that most Americans can benefit from it. Read on and see how you can benefit even if you are not worth millions.

Sarah O’Brien | Tuesday, 9 Aug 2016 | 7:50 AM ET

About 10 years ago, financial advisor Andrew Rafal was involved in helping a husband and wife create an estate plan. Six days after all the documents were in order and signed, the husband unexpectedly died from an aneurysm.

Thanks to the couple’s planning, the surviving wife was able to access and assume ownership of assets that otherwise would not have been available immediately.

“It would have been a very different situation if they hadn’t finalized their estate plan,” said Rafal, founder and president of Bayntree Wealth Advisors. “In a time of grieving, it’s one less thing to go through.”

While estate planning is often associated with the wealthy, financial advisors say that most Americans can benefit from it.

Senior man pensive

Lee Edwards | Getty Images

“It’s not just for the wealthy; it’s for all of us,” Rafal said. “And the earlier you start, the better.”

The most basic part of estate planning is a will, which more than half of Americans die without, according to various data. Advisors caution that dying intestate (having no will) will result in a state court deciding who gets your assets and, if you have children, who will care for them.

This means that if you have an unmarried partner or a favorite charity but no will, your assets won’t end up with them. Typically, the courts will pass on assets to your closest blood relatives, even if that wouldn’t have been your first choice.

“Everyone should have a will,” Rafal said. “It allows assets to go to beneficiaries you name. And if you have children who are minors, it names a guardian, which is extremely important.”

“As people go through different milestones in life, they need to change their beneficiaries. The beneficiary trumps any other estate planning you do.”-Andrew Rafal, founder and president of Bayntree Wealth Advisors

Another often-overlooked element of estate planning is updating beneficiaries on financial assets such as individual retirement accounts, 401(k) plans and life insurance policies. Regular bank accounts, too, should have beneficiaries listed on a payable-on-death form, also known as a POD, which your bank can supply.

“As people go through different milestones in life, they need to change their beneficiaries,” Rafal said, explaining, “If you had your parents listed and then you get married, those assets go to your parents. The beneficiary trumps any other estate planning you do.”

Certified financial planner Aaron Graham had a client who, after a divorce, updated his will to exclude his ex-wife. But because the client’s beneficiary designations were not updated, his ex-wife received his retirement account assets.

“Thankfully, the ex-wife was cooperative with the children of the deceased, but that’s not always the case,” said Graham, a financial advisor at Abacus Planning Group.

If no beneficiary is listed on those assets or the beneficiary has already passed away, the assets automatically go into probate. That’s the process by which all of your debt is paid off and then the remaining assets are distributed to heirs.

Each state has its own laws governing how long creditors have to make a claim against the decedent’s estate, but it typically is about six months to a year.

In the case of Rafal’s client, for instance, if the wife had not been listed as a beneficiary on her husband’s retirement and stock accounts, those assets would have first gone into probate and she would have had no claim to them until probate was completed.

Another part of estate planning involves what Rafal calls “lifetime management.” That is, for starters, creating legal documents that give powers of attorney to specific people in your life if you are alive but incapacitated.

A medical power of attorney lets the chosen person make important health-care decisions if you cannot; a person with durable power of attorney will act as your agent if you become unable to tend to your finances.

Granting your own wishes

Rafal said those people could be one and the same, but most often, people name two separate people.

“You might have someone who’s not great with finances but you trust the person to make medical decisions for you, or vice versa,” Rafal explained. “Durable power of attorney lets a person step in if you are unable to make decisions.”

Tied to that is a living will. It states your wishes if you are on life support or have a terminal condition.

“Do you want to prolong [your] life at all costs, or do you have specific instructions on when and how you would like for life-saving measures to be implemented?” Graham said.

The idea is that it will be your wishes, not someone else’s.

Have you made your annual financial checklist?

   WIN-Initative | Getty Images

As far as taxes go when it comes to estate planning, chances are, you won’t have to worry about the estate tax.

“It’s important to remember that 99 percent of all people don’t need to focus on the tax aspects of estate planning,” said Pete Lang, president of Lang Capital. “For the vast majority of the population, there will be no gift or estate tax.”

For 2016, the Internal Revenue Service will impose taxes on estates whose assets exceed $5.45 million. Roughly 0.02 percent of the population ends up paying the estate tax in any given year.

Estate planning also “helps protect against families fighting, or someone potentially contesting the wishes of the deceased,” Rafal said. “We’ve had new clients come to us who didn’t have proper planning, and their families have been torn apart.”

Rafal said it’s also important to make a list — handwritten or electronic — of all your assets and where they are.

“It makes it so much easier upon death or incapacity so your family isn’t running around wondering what you have or don’t have,” he said.

DOWNLOAD YOUR FREE ESTATE PLANNING GUIDE >>>

8 Things Seniors Should Remember at Tax Time

April 15th is approaching and it is time to begin crossing T’s and dotting I’s in preparation for paying taxes. As tax time draws near, you want to make sure you file all the proper forms and take all deductions you’re entitled to. Following are some things to keep in mind as you prepare your tax form.

brian raphan

  • Gifts. Did you give away any money this year? The gift tax can be very confusing. If you gave away more than $14,000 in 2015, you will have to file a Form 709, the gift tax return. This does not necessarily mean you will owe taxes on the money, however. Click here for more information.
  • Medical Expenses. Many types of medical expenses are tax deductible, from hospital stays to hearing aids. To claim the deduction, your medical expenses have to be more than 10 percent of your adjusted gross income.  (For taxpayers 65 and older, this threshold will be 7.5 percent through 2016.) This includes all out-of-pocket costs for prescriptions (including deductibles and co-pays) and Medicare Part B and Part C and Part D premiums. (Medicare Part B premiums are usually deducted out of your Social Security benefits, so be sure to check your 1099 for the amount.) You can only deduct medical expenses you paid during the year, regardless of when the services were provided, and medical expenses are not deductible if they are reimbursable by insurance. Click here for more information.
  • Parental Deduction. If you are caring for your mother or father, you may be able to claim your parent as a dependent on your income taxes. This would allow you to get an exemption $4,000 (in 2015) for him or her. Click here for more information.
  • Long-Term Care Insurance Premiums. Premiums for “qualified” long-term care policies are treated as an unreimbursed medical expense. Long-term care insurance premiums are deductible for the taxpayer, his or her spouse and other dependents. Click herefor more information.
  • Social Security Benefits. Although Social Security benefits are generally not taxable, people with substantial income in addition to their Social Security may pay taxes on their benefits. If you file a federal tax return as an individual and your “combined income,” including one half of your Social Security benefits and nontaxable interest income is between $25,000 and $34,000, 50 percent of your Social Security benefits will be considered taxable. If your combined income is above $34,000, 85 percent of your Social Security benefits is subject to income tax. Click here for more information.
  • Home Sale Exclusion. Married couples can exclude from income up to $500,000 in profit on the sale of a home ($250,000 for single individuals). If a surviving spouse sells the home, he or she can still claim the exclusion as long as the house was sold no more than two years after the spouse’s death. Click here for more information.
  • Elderly or Disabled Tax Credit. Some low-income elderly or disabled individuals are entitled to a special tax credit. To be eligible, you must meet income limits. For more information, click here.
  • Tax Refunds. Getting a federal tax refund should not affect your Medicaid or Social Security benefits. For a year after recieving a tax refund from the federal government, the refund will not be considered income or resources for SSI or Medicaid purposes. You can also transfer the refund within a year without incurring a penalty. For more information, click here.
The IRS’s Tax Counseling for the Elderly (TCE) Program offers free tax help to taxpayers who are 60 and older. For more information, click here. The IRS also publishes a Tax Guide For Seniors.

Additional Free Guides For Seniors>

Life Events That May Have Tax Consequences for Seniors and Retirees

Many significant life events often come with a related tax consequence. Here are some issues that may be facing seniors and retirees with links to more information on their tax impact.

elder law nycAs listed by the IRS

Planning for Retirement?

Mutual Fund Distributions

Job Loss or Starting a New Career or Job

Persons with Disabilities

Decedents

  • Publication 559, Survivors, Executors and Administrators
  • Form 56, Notice Concerning Fiduciary Relationship
  • Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer
  • Form 4810, Request For Prompt Assessment Under Internal Revenue Code Section 6501(d)

Divorce or Separations

Marriage

Disaster

Moving?

Did You Receive a Notice?

Filing or Paying Late – Information Taxpayers Should Know!

Many people today need more time to prepare their federal tax return. They may want to consider an  for time to file. However, extension of time to file a return does not grant any extension of time to pay a tax liability.

Additional Assistance

News Releases and Tax Tips

Regards,

Brian

The Law Offices of Brian A. Raphan, P.C.

www.RaphanLaw.com

Free Tax Help & Filing for Low- and Middle-Income Taxpayers

The United States Internal Revenue Service (IRS) is sponsoring the largest free tax counseling and preparation program in the country, available through AARP.

As seen in: SeniorLiving.about.com
As seen in: SeniorLiving.about.com

Who Can Use this Free Tax Help and Free Filing Service?

Most people who work need to file a tax return. AARP Tax-Aide is a free tax help service for people who meet the following criteria:

  • Low- or middle-income taxpayers who want tax help and free filing of their U.S. federal income tax returns
  • You must have a simple tax return. People seeking tax help who have more complex returns will be advised to get professional tax assistance.
  • You do not need to be a member of AARP or a senior to receive tax help from Tax-Aide, however special attention is paid to people age 60 and over.

What Are the Details of This Free Tax Help and Filing Service?
Every year, from February 1st through April 15th, about 32,000 trained and certified Tax-Aide volunteers across the country are available to provide tax help for preparing and filing your federal tax return.

  • Many Tax-Aide locations are equipped to file your return electronically, allowing you to receive your tax refund much faster.
  • Some Tax-Aide locations offer bilingual assistance.
  • In most situations, you must visit an AARP Tax-Aide site in person to have your tax returns prepared by Tax-Aide volunteers. However, special arrangements can be made to assist shut-ins and homebound disabled persons by providing tax help at locations including hospitals, nursing homes, assisted living facilities, etc. To make a special tax help request, contact AARP at taxaide@aarp.org[/Email”>.
  • Volunteers are not available to provide tax help by phone, so visit the online tax counseling site for a list of frequently asked questions or to submit your own questions.
  • What Do I Need to Bring When I Receive Free Tax Help?
    • Photo identification
    • Social Security card
    • Wage and earning statements
    • Interest and dividend statements
    • A copy of last year’s federal and state returns if available
    • Your bank account and bank routing numbers so you can arrange for direct deposit of your tax refund
  • Where Can I Find the Closest Tax-Aide Site?

    What If There’s No Tax-Aide Site Near Me?
    If you cannot find a Tax-Aide location near you, the IRS offers other tax help options. For more information:

Tips for Seniors in Preparing their Taxes

As April 15th is around the corner, the IRS has these tips for seniors preparing their taxes:

Current research indicates that individuals are likely to make errors when preparing their tax returns. The following tax tips were developed to help you avoid some of the common errors dealing with the standard deduction for seniors, the taxable amount of Social Security benefits, and the Credit for the Elderly and Disabled. In addition, you’ll find links below to helpful publications as well as information on how to obtain free tax assistance.

Standard Deduction for Seniors – If you do not itemize your deductions, you can get a higher standard deduction amount if you and/or your spouse are 65 years old or older. You can get an even higher standard deduction amount if either you or your spouse is blind. (See Form 1040 and Form 1040A instructions.)

Taxable Amount of Social Security Benefits -When preparing your return, be especially careful when you calculate the taxable amount of your Social Security. Use the Social Security benefits worksheet found in the instructions for IRS Form 1040 and Form 1040A, and then double-check it before you fill out your tax return. See Publication 915Social Security and Equivalent Railroad Retirement Benefits.


Credit for the Elderly or Disabled – You must file using Form 1040 or Form 1040A to receive the Credit for the Elderly or Disabled. You cannot get the Credit for the Elderly or Disabled if you file using Form 1040EZ. Be sure to apply for the Credit if you qualify; please read below for details.

Who Can Take the Credit: The Credit is based on your age, filing status and income. You may be able to take the Credit if:

Age: You and/or your spouse are either 65 years or older; or under age 65 years old and are permanently and totally disabled.

AND 

Filing Status: Your income on Form 1040 line 38 is less than $17,500, $20,000 (married filing jointly and only one spouse qualifies), $25,000 (married filing jointly and both qualify), or $12,500 (married filing separately and lived apart from your spouse for the entire year).

And, the non-taxable part of your Social Security or other nontaxable pensions, annuities or disability income is less than $5,000 (single, head of household, or qualifying widow/er with diependent child); $5,000 (married filing jointly and only one spouse qualifies); $7,500 (married filing jointly and both qualify); or $3,750 (married filing separately and lived apart from your spouse the entire year).

Calculating the Credit: Use Schedule R (Form 1040 or 1040A), Credit for the Elderly or Disabled, to figure the amount of the credit.  See the instructions for Schedule R (Forms 1040 or 1040A) if you want the IRS to figure this credit for you.

Also see Publications 524 (Credit for the Elderly or Disabled); and 554 (Tax Guide for Seniors). 

Free IRS Tax Return Preparation –  IRS-sponsored volunteer tax assistance programs offer free tax help to seniors and to low- to moderate-income people who cannot prepare their own tax returns.

If you have recently done some Estate Planning, check with us and your accountant to make sure you are filing your returns properly.

FREE ESTATE PLANNING GUIDE

Regards, Brian

The Law Offices of Brian A. Raphan, PC

Lessen the Tax Burden of your Estate with a Properly Drafted Will

If you plan properly and have your plan reviewed periodically, you may lower or eliminate the tax burden on your estate and leave more to your beneficiaries.

Last Will & TestamentBefore you make a will, you should also know how estate and income taxes affect you and your assets. The federal and New York tax laws change often as a result of various tax reform acts. So you may not be up-to- date with these complex and frequently changing laws.

Also, you may be unaware that you can choose which of your beneficiaries pay the estate taxes. If you do not choose how your estate taxes will be allocated, the tax burden will be allocated among your beneficiaries according to statutory rules that may not be in accordance with your wishes. An attorney can help you draft a will and create an estate plan that addresses these issues. If you plan properly and have your plan reviewed periodically by an attorney, you may be able to reduce or eliminate the tax burden on your estate and leave more to your beneficiaries. You may and should discuss the question of a fee with your attorney in advance. The cost of drawing a will depends on the amount of time your attorney spends on the matter, the complexity of your assets, and your dispositive wishes. In small estates, when a will contains no complicated provisions and need not address any unusual problems, the fees may be very modest. Remember, the advice of an expert may prove invaluable. Making a will is one of the wisest and potentially most important investments of your life. This information, which is based on New York law, is intended to inform, not to advise. No one should attempt to interpret or apply any law without the aid of an attorney. This is particularly true of trusts and estates law. You should consult an attorney before making decisions in this area. For questions or help preparing your Will call me at 212-268-8200 for a free consultation.