Don’t overlook these tax breaks for retirees


“Did I miss anything?” That’s the silent refrain being sung across America as we hunch over a stack of papers, preparing our tax returns.  We wonder whether there are any deductions or other favorable rules that we may have overlooked. The answer is—quite possibly. When we reach 65, there are numerous opportunities to save on our tax bill, as well as pitfalls to avoid, which we found in recent a Kiplinger newsletter. Some require advanced planning, others you can take advantage of now. We summarized those benefits for you here; Kiplinger’s easy-to-scroll-through pointers will supply more detail.

Standard deduction increases

The standard deduction increases when you turn 65. For 2016 returns, a single 64-year-old gets a standard deduction of $6,300 while a 65-year-old gets $7,850. When both husband and wife are 65 or older, the standard deduction on 2016 joint returns is $15,100.

Easier to deduct medical expenses

This is the last year to take advantage of a special provision that sets a 7.5 percent threshold for medical expense deductions for those 65+. (The threshold is 10 percent for those who are younger.) If you’re married, only one spouse needs to be 65 to be eligible for the 7.5 percent threshold. Next year, the 10 percent threshold will apply to all taxpayers.

A break for the self-employed: deduct Medicare premiums

If you are self-employed, you can deduct the premiums you pay for Medicare Part B and Part D, plus the cost of supplemental Medicare (medigap) policies or the cost of a Medicare Advantage plan. This deduction is available whether or not you itemize and is not subject to the 7.5 percent-of-AGI test that applies to itemized medical expenses for those 65 and older in 2016. Exceptions apply, of course.

Contribute to spousal IRA

If you’re married and your spouse is still working, they can contribute up to $6,500 a year to an IRA that you own. If you use a traditional IRA, spousal contributions are allowed until the year you reach age 70 ½. If you use a Roth IRA, there is no age limit. The $6,500 cap applies in both 2016 and 2017.

Making tax payments is now on you

Although April 15 (April 18 in 2016) is the day our income tax return must be filed, taxes are due throughout the year as income is earned. Employers used to take care of that. With retirement that responsibility shifts to the individual.  If you wait until you file your annual tax return to pay, you’ll be liable for penalties and interest on the amount that you underpaid during the year. There are two ways to ensure you pay enough tax throughout the year, withholding as you withdraw from an IRA, and/or making quarterly estimated tax payments. Both require you to take the initiative in setting withholding guidelines or filing quarterly payments.  In addition, you’ll need to specifically request that taxes from Social Security benefits are withheld by filing a Form W-4V.

Work your required minimum distribution

Here’s a way to get around the pay-as-you-go requirement from required minimum distributions (RMD). If you don’t need the money to live on during the year, wait until December to take it. Ask your IRA sponsor to hold back enough to cover estimated taxes on both the RMD, and your other taxable income if you like. Amounts withheld from IRA distributions are considered paid throughout the year, even if they are made in a lump sum at the end.

Avoid the pension rollover tax surprise

Taking a lump-sum pension payout from your employer can cause all kinds of tax headaches. Read the Kiplinger article to get in the weeds of the details. The good news is there is a way to avoid an IRS nightmare: direct your employer to send the money directly to a rollover IRA. As long as the check is made out to your IRA and not to you personally, the IRS will not withhold the required 20% and all of the nuisance that goes with it. Seriously, read the article and consult with a lawyer or financial adviser before putting your John Hancock on those pension documents.

Tax-free profit from a vacation home? There’s a way to do it.

Did you know that there is also a way to capture tax-free profit from the sale of a former vacation home? Here’s how it works—once you’ve sold your family home and benefited from the tax break that makes up to $250,000 in profit tax-free ($500,000 if you’re married and file jointly), you can then move into a vacation home you already own.  If you make that house your principal residence for at least two years, part of the profit on its future sale will be shielded from taxes.

Make gifts of money. Big money.

If you are concerned that your heirs may be faced with the federal estate tax you should take advantage now of the annual gift tax exclusion.  If your estate has the potential to exceed $5,490,000, the amount that can pass to heirs tax free, you can reduce it giving up to $14,000 annually per person without worrying about the gift tax.  If you’re married, you can double that amount. That money can’t be taxed as part of your estate after your death.

For more details on these tips, go to Of course, before you make any significant decisions relating to your tax situation, you should consult a qualified tax professional.

Blue Hare has not received compensation of any kind from Kiplinger (although that would be nice). The newsletter appeared in the mailbox of one of our editors and we thought it was good advice to share.


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