Finding a reputable source of retirement tax tips can be particularly difficult for seniors. Retired adults and those who are transitioning into retirement should discuss 5 key considerations with their tax professional to make for a smoother tax season.
Are Social Security Benefits Taxable?
Retired workers who receive Social Security benefits along with extra income from a side job or other source may wonder whether they are required to pay taxes on their benefits. IRS Form SSA-1099, the Social Security Benefit Statement, can help retired taxpayers determine the extent to which their benefits may be taxed. Those who use the form are instructed to add half of their Social Security benefits to any additional income, including tax-exempt interest. The result is known as “provisional income.” Social Security benefits may be taxed for single taxpayers if their provisional income exceeds $25,000. For married couples who file jointly, Social Security benefits may be taxed if their combined provisional income exceeds $32,000.
Medical Expense-Related Tax Breaks
For the current tax season, some seniors may take advantage of a more favorable tax break for medical and dental expenses. During the period between the 2013 to 2017 tax years, individuals who are 65 or older may deduct medical and dental expenses that exceed 7.5 percent of their adjusted gross income.
Itemized and Standard Deductions
Some retired taxpayers who are over the age of 65 may be disappointed to find that they are unable to itemize deductions. However, those who were 65 at the end of 2013 qualify for a larger standard deduction.
Retirement Distributions
At age 59 1/2, taxpayers are eligible to withdraw money from an IRA, though the distributions are usually taxable. However, there are ways to avoid the 10 percent early withdrawal penalty that applies to withdrawals that are made before age 59 1/2. Individuals who are totally and permanently disabled may make penalty-free withdrawals prior to reaching the minimum age. Distributions that are made from an employer-sponsored plan may also be accessed without penalty if the employee has separated from the employer and is at least 55 years old.
Withdrawing Money from Retirement Savings
Although a senior taxpayer can choose to delay required retirement distributions from his or her employers until retirement, the worker must begin taking IRA distributions at age 70 1/2. The required minimum distribution must be received prior to December 31st of each year after turning 70 1/2. This is one of the most important retirement tax tips because failing to take out the required minimum each year may result in the assessment of a large penalty.
Gary M. Kaplan is a CPA and retirement planning specialist who is qualified to advise tax payers in Florida, Maryland, Washington, D.C., Utah, and New York. Contact our firm to learn more about our services and to receive other valuable retirement tax tips.
