Retirement is a huge milestone. Naturally, you spent decades working toward it. However, the party eventually ends. Once the steady paychecks stop, the reality of a fixed income sets in. Honestly, this shift feels strange. In a way, you switch from saver to spender. Suddenly, every dollar leaving your account feels heavier. The fear of outliving your money is real. Consequently, giving the IRS extra money hurts so much. After all, you paid your dues. You shouldn’t have to pay a tip.
The tax code is a maze. Furthermore, it changes the moment you turn 65. Many retirees think taxes get simpler. Unfortunately, they actually just get different. Complex rules often hide legitimate breaks. As a result, this leaves your money on the table. You might miss out simply because no one told you where to look. Let’s walk through the deductions you deserve.
The “Over 65” Standard Deduction Bonus
Most people know about the standard deduction. Basically, it is the baseline income that the IRS doesn’t tax. But did you know the IRS gives you a birthday present? In fact, it is one of the few perks of aging that puts cash back in your wallet.
For instance, single filers 65 or older get an extra deduction on top of the regular amount. Likewise, married couples over 65 get double that bonus. This perk is automatic. It lowers your taxable income instantly. Best of all, you don’t need to hunt for receipts or itemize a single expense.
The Medical Expense Threshold
Sadly, our bodies need more maintenance as we age. Therefore, healthcare costs inevitably creep up. While these bills hurt, they offer a silver lining at tax time. Specifically, the IRS lets you deduct medical expenses that exceed 7.5% of your adjusted gross income.
Surprisingly, this deduction covers more than you think. For example, it isn’t just for major surgeries. Instead, it includes dental treatments, hearing aids, and long-term care insurance premiums. Additionally, it even covers mileage to doctor appointments. Did you have a heavy medical year? Crunch the numbers. You might be surprised at how much you can write off.
Qualified Charitable Distributions (QCDs)
Traditional IRA owners must eventually take Required Minimum Distributions (RMDs). The government makes you withdraw this money so they can tax it. This is frustrating if you don’t need the cash. Worse, this extra income might bump you into a higher tax bracket.
However, a Qualified Charitable Distribution (QCD) solves this. You transfer funds straight from your IRA to a charity. This counts toward your RMD. Crucially, it does not count as taxable income. It is a win-win. You lower your tax bill and support a cause you care about.
Medicare Premiums
Self-employed people and itemizers should watch their Medicare premiums. The IRS considers Medicare Part B, Part D, and Medigap premiums as medical expenses.
Social Security often deducts these premiums automatically from your check. Therefore, many retirees forget they pay them out of pocket. Find your SSA-1099 form. Make sure you include these premiums in your medical expense calculations.
State-Specific Breaks
Federal taxes get all the attention. However, don’t ignore savings on your state return. Each state has unique rules that benefit seniors.
For example, some states exempt Social Security benefits from taxes. Others offer generous exemptions for pension income. Some even freeze property taxes for seniors. Research the specific laws in your home state. Better yet, ask a local tax pro. Don’t pay a local tax you don’t technically owe.
HSA Contributions
Are you still working part-time? Also, do you have a high-deductible health plan? You might have a unique window of opportunity. You can still contribute to a Health Savings Account (HSA). This offers tax-deductible contributions and tax-free growth.
Here is the catch. You cannot contribute to an HSA once you enroll in Medicare. However, you can still use your existing funds tax-free for medical expenses. Max out your HSA before Medicare kicks in. It is a smart, last-minute tax strategy.
Take Control of Your Financial Legacy
Retirement planning doesn’t end when you quit your job. You must actively manage your nest egg. The tax code punishes passive observers. Conversely, it rewards proactive people who ask the right questions. These deductions save you money. Ultimately, they let you control your financial dignity. Review these opportunities with your tax professional this year. Keep your money on your terms.
Did you know about the “Over 65” deduction bonus? Tell us in the comments which tax break surprised you the most!
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The post 6 Tax Deductions Retirees Often Miss (But Are Entitled To) appeared first on Budget and the Bees.
