Tuesday, November 10, 2015

6 Hidden Tax Breaks for Retirees

FROM http://www.gobankingrates.com/

Managing your taxes in retirement can be quite an undertaking. And when it comes to your taxes, there are many tax write-offs you should consider. Make sure you understand all of the deductibles, write-offs and tax breaks for retirees that might apply to you. Here are six of them:

1. Medical and Dental Expenses

According to the IRS, medical expenses include medical insurance premiums as well as the cost of qualified long-term care services and long-term care insurance contracts.
David M. Hryck is a New York-based lawyer and personal finance expert with Reed Smith. He explained the tax breaks with respect to health insurance and Medicare premiums, long-term care insurance and prescription drugs as well as the limits depending on your income. “In order to take advantage of these breaks and benefits, you need to itemize your deductions,” said Hryck. “Medical and dental expenses are deductible from your income taxes on Schedule A of your tax return.”
Hryck said it’s important, however, to note that there is a limit for individuals age 65 and older and their spouses. “Until 2017, the limit is 7.5 percent of a taxpayer’s adjusted gross income (AGI),” said Hryck. So, medical costs that exceed 7.5 percent of an individual’s AGI are tax deductible. This is the also the case for dental expenses.
For example, if your AGI is $45,000 and your medical expenses are $5,000, multiply $45,000 by 0.075 (7.5 percent), and you’ll find that only expenses exceeding $3,375 can be deducted. This would give a medical expense deduction of $1,625.

2. Vitamins and Nutritional Supplements

Ryan Himmel is a certified public accountant (CPA) and CEO of TaxResearchPro, an online research portal. He said that vitamins and nutritional supplements are typically discounted as possible sources of tax breaks for seniors. According to him, “Vitamins and supplements can be overlooked as many elderly taxpayers may think there’s no chance of deducting these medical expenses.”
But, “that’s not always true,” said Himmel. “We’ve seen countless examples of those on dialysis being prescribed specific supplements and vitamins by their doctor that goes beyond just caring for their general health.” Referencing IRS Publication 502, Himmel suggests that the cost of these products can amount to thousands of dollars, which can be applied as eligible deductions.
To qualify, the supplements must be “recommended by a medical practitioner as treatment for a specific medical condition diagnosed by a physician” in order to be included as medical expenses, states the IRS.
So, save all your receipts for any products that you buy for health reasons, which might add up to a substantial amount over the course of a year. And, ask your doctor to provide a written recommendation for tax-planning purposes.

3. Travel to the Doctor or Hospital

Elderly people visit the doctor much more frequently than healthy, younger adults. A survey from a Centers for Disease Control and Prevention study shows that in 2012, almost 23 percent of Americans aged 75 or older visited their doctor 10 or more times in the past year compared with only 10.6 percent of Americans aged 18 to 44. And, many might go much more than 10 times a year when you consider screening and testing appointments. Luckily, transportation to and from these appointments can be deductible.
“Medical transportation mileage is deductible at the rate of 23.5 cents per mile [for 2014],” said Himmel. “Let’s suppose some taxpayers visit the doctor 15 times, and the average travel is 20 miles to and from the doctor. After incorporating the mileage deduction, that’s another $50 to $100 that can be included as a deduction when the taxpayer itemizes their return.”
The IRS also states that individuals can also include the cost of overnight trips that are required for medical services. Lodging expenses for caregivers are also eligible as tax write-offs if the caregiver is required to travel with the person that is to receive the care.

4. Nursing Expenses

Many elderly people have caretakers that come to their home. These expenses might be deductible as medical expenses. According to Himmel, “The main criteria is that the taxpayer must be chronically ill, and the caregivers must be required or prescribed by a physician.”
“If those two criteria are met,” he continued, “then the taxpayer will need to determine if the costs exceed 7.5 percent of their adjusted gross income. If that’s the case, and they do itemize the expenses on the tax return, then the taxpayer can certainly claim the expenses as a deduction to their income.”
According to the IRS, the expenses that are eligible need not be limited to nursing services as long as they are “of a kind generally performed by a nurse.” Therefore, if a caregiver in the home also provides personal and household services, the amount paid to the caregiver must be separated into personal care services and household services.
The IRS gives an example of possible savings: Say you pay a visiting nurse or caregiver $300 per week for medical and household services. That caregiver spends 10 percent of her time helping you with laundry or shopping. In this case, $270 can be applied to taxes and eligible for a tax break as medical expenses.
Although the $30 paid for household services cannot be included, some maintenance or personal care services needed for long-term care can be included in medical expenses. You can also include part of the cost you might pay for the caregiver’s meals. Extra household costs that you pay because of the attendant are also admissible, such as extra rent for the space required for an attendant.

5. Medical Items

The cost of many medical-related items can also be deducted from taxes. According to Himmel, some medical items often overlooked include prescription glasses and contact lenses, hearing aids, bandages, dentures and wheelchairs.
The amount that can be saved will depend on the expenses, of course. The IRS lists the items and explains each in detail. One caveat is that you cannot include medical expenses that were paid by insurance companies or other sources.
If spouses are living separately — which can often be the case if each have different care needs — and you file separately, only the spouse who paid for the item should include it in their tax return.

6. IRA Contributions

Hryck emphasizes that IRA contributions are an important tax item. After all, your contributions to an IRA are tax deductible.
Hryck said, “If you’re married, and your spouse is still working, he or she can contribute up to $6,500 [if you’re age 50 or older] a year to an IRA that you own. If you use a traditional IRA, spousal contributions are allowed up to the year you reach age 70½.” He added, “If you use a Roth IRA, there is no age limit. This is definitely a break that people can use to their advantage to sock away more money.”

Make your year-end tax planning easier. Keep meticulous records of medical-related payments with receipts, and consult a tax professional who can help you to meet the requirements and make the most of any tax write-offs in your retirement years.