Helpful Tax Deductions for Seniors

Which Type of Account Saves Pre-Tax Dollars?

(FinancialHealth.net) – Sometimes seniors miss out on viable tax deductions that might help save them money or increase the value of their annual return. The most common applied deduction is the standard deduction, which nearly doubled for 2019. This year, singles can claim $12,000 in the standard deduction while married couples filing jointly can claim $24,000.

The higher amount is a benefit for many, but especially for seniors and retirees who may not have a mortgage or other expenses to itemize. However, there are other helpful tax deductions available, let’s take a look at the most beneficial.

Retirement Plan Contributions

Seniors who continue to work and even those who have reached semi- or full-retirement status can contribute to retirement plans. One great benefit though is that after the age 50, contributors may qualify for “catch-up contributions” which make it easier to contribute even more. And, even better, most contributions are tax-deductible

Medical Expenses Deduction

Medical expenses may be one of the biggest expenses that a senior will bear throughout the year. Most office visits, prescriptions, medical equipment and insurance premiums for both medical and dental count toward this deduction. However, there are certain limits and restrictions. Seniors can only claim expenses that go beyond 10 percent of their adjusted gross income (AGI). This means someone with an AGI of $50,000 can only claim expenses that exceed $5,000.

Sale of Home

This is more of a tax break than a deduction, but it bears mentioning. When retirement rolls around, some seniors sell their homes in favor of moving to a retirement community. Chances are, those who lived in their homes for an extended period of time have built up substantial equity over the years.

When the house sells, as long as the person owned it for a minimum of 2 years and lived in it as a primary residence for the 2 to 5 years prior to the sale, they can avoid paying capital gains taxes on the profits. There are limits, of course, and profits can’t exceed $250,000 for single people and $500,000 for married couples. Do note that capital gains, even if they qualify for the tax break, need to be listed on Schedule D.

If you’re a senior filing your taxes and you’re not sure which, if any, tax deductions you qualify for, it’s vital to speak with a tax or financial planning expert. These tax breaks can help save you money in the long run and they’re worth exploring, but there may be even more, so a quick visit could really pay off.

~Here’s to Your Financial Health!

Copyright 2020 – FinancialHealth.net

Save Pre-Tax Dollars With This Account

Which Type of Account Saves Pre-Tax Dollars?

(FinancialHealth.net) – Maybe you just breathed a sigh of relief because all the bills are paid and you have a bit of extra cash, but that sudden intake of air sparked a sharp pain from an impacted wisdom tooth. Or maybe you’re on a first name basis at the ER because one of your kids is a frequent flyer.

Whatever the case may be, the combined costs of medical expenses like copays, prescriptions, dental care, vision services, and medical supplies can wreak havoc on the average budget.

Flexible spending accounts won’t take away those medical issues, but they can help ease the financial pain a bit.

What Are Flexible Spending Accounts?

Flexible Spending Accounts are offered by participating employers to employees interested in putting aside pre-tax dollars. The funds can be used to cover qualifying out-of-pocket medical expenses throughout the year.

During open enrollment, applicants indicate how much of their pre-tax income they’d like to deposit into the account (Up to $2,750 per year as of 2020). This deduction reduces take home pay and generates tax savings during participating years.

The funds can be used at any time for approved medical expenses for the employee, their spouse, or any dependents under the age of 27. Depending on the plan, users are either provided with a debit card or are required to submit receipts for reimbursement after purchase.

Don’t Lose Your Flexible Spending Dollars

Having a flexible spending account is a great way to save money throughout the year and during income tax season. It is also ideal for those who have ongoing medical needs. Yet, some would say it’s not for everyone.

With a use it or lose it policy in place, applicants are required to use the funds before the predetermined deadline each year. Depending on which plan is offered, some may be allowed to carry over a balance of up to $500, but not all plans allow for this

If opening a Flexible Spending Account sounds like something you’re interested in, but you’re worried about losing your savings at the end of the annual deadline, there are steps you can take to reduce the likelihood of that happening. Keep track of your medical expenses throughout the year.

Every year, users can make adjustments to their contributions. If you over-saved the year before, drop your contributions accordingly to avoid losing your money. If you spent more on medical expenses than you saved, increase your contribution.

Do your homework before making the decision to enroll in a Flexible Spending Account. Consider your current health and average medical costs for the year to determine if this type of savings is right for you.

If in doubt, visit Healthcare.gov or talk to your financial advisor to learn more about Flexible Spending Accounts and whether or not you should contribute.

~Here’s to Your Financial Health!

Copyright 2020,  FinancialHealth.net

5 Often Overlooked Tax Exemptions

Which Type of Account Saves Pre-Tax Dollars?

When It Comes to Tax Time, Every Little Bit Helps!

When it comes to tax time, everyone wants to get the most out of their return by minimizing what they owe. Most people get some type of refund, depending on their financial circumstances. Claiming all possible deductions ensures the taxpayer’s money is actually working for them. Check out these five overlooked tax breaks.

1. Last Year’s State Tax

When filing last year’s taxes, there may be a chance that there is money owed, especially if the taxpayer is a small business owner. An accountant or tax preparer should catch any debts that need to be paid right away, but if the taxpayer is doing the preparation themselves, they need to remember to include what was paid out last year. It’s important to calculate the amount and add it with the state itemized deduction. All estimated quarterly payments owed or state taxes withheld from paychecks should be included, too.

2. Mortgage Refinance Points

Happen to refinance a mortgage last year? If so, don’t forget to count it toward a deduction on taxes. When refinancing, a homeowner must deduct points or prepaid interest for the entire length of the loan. Mortgage points vary across the board, depending on the remaining balance and loan type. While it may only equal out to be a small amount, it will chisel away at the total owed toward taxes.

3. Additional Charity Contribution Expenses

Helping others and giving back is rewarding in many ways. While charitable contributions via check or through payroll deduction can add up annually, there’s still an option to get some out-of-pocket costs back and reduce the amount owed to the IRS. Mileage, food purchased for charity events and stamps used to mail out flyers for a fundraiser are just a small portion of what can be claimed as a contribution on taxes.

4. Student Loan Interest

College students know about deducting student loan interest on taxes because every little bit helps. But what about if the parents are paying on those student loans? The IRS now allows the child, as long as they’re not a dependent on their parent’s return, to deduct up to $2500 of student loan interest that their parents paid. The caveat is that the loan has to be under the student or child’s name, not the parent.

5. Jury Duty Pay Deductions

For taxpayers who participated in their civic duty to serve on a jury, there are a lot of costs involved. Time off work and mileage are usually reimbursed by the state or county. Some employers request employees to turn their jury duty reimbursement amounts over to them if they paid the employee for the time off. This needs to be reported to the IRS as income, but the good news is that it can be deducted come tax time.

The main goal is to reduce the total amount owed to the state or IRS. Knowing what deductions apply and which filing status to use will help reduce the total amount a person owes and keep more money in the taxpayer’s pocket.

~Here’s to Your Financial Health!

Copyright 2020, FinancialHealth.net

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