Did you put the briefcase away in the closet recently? Are you planning to call it quits after your 30-year career with the same company?
Retirement can be a huge relief to many who have been awakened by their annoying alarm clocks for decades. However, it can also be a bit scary in terms of your financial future.
Here are some handy tax tips for retirees that can make not working even more enjoyable:
— Don’t forget to take your Social Security minimum distributions.
Taxpayers are required to start taking minimum distributions for Social Security from a retirement account by April 1 in the year in which you reach 70 ½ years old. If you fail to start claiming these required distributions on time, you could be on the hook for a steep penalty – often 50% of the amount you are supposed to withdraw.
— Think twice before combining retirement accounts.
While you may have just retired and have no desire to ever work again, some people wind up going back to work in some capacity. In turn, you may take on a new employer-sponsored 401(k) for your new position. You may want to put funds into this new retirement plan as well. So, it’s wise to keep any previously earned funds from a 401(k) in a separate account rather than funneling all of your accounts into a single IRA.
— Volunteer at a local library or food bank.
It’s always nice to get out in the community and help others, especially when you have the time for it. Consider volunteering one or two days a week at your local library to help kids learn to read or at a food bank to feed the less fortunate. When you volunteer for a non-profit organization, you can save on your taxes. If you were to become an employee again, you’d be on the hook for income taxes. Volunteering doesn’t require any taxes on your part. Plus, you can write off most relevant expenses related to volunteer work, such as vehicle costs or purchasing certain items for the organization.
— Claim all tax deductions for which you’re eligible.
While you may be retired from a job that allowed for a number of employee or business tax deductions, don’t think that you are no longer eligible for write-offs. If you fall into a lower tax bracket, or if you have several itemized deductions that exceed your taxable income, consider claiming taxable distributions out of your retirement accounts. This money may be subject to minimal taxes or perhaps none at all, and you’ll be able to avoid higher tax rates in the future.
Don’t forget to deduct investment expenses as well. If you work with an investment advisor or an accounting professional, the fees you incur are deductible on your return if they amount to more than 2% of your income. Other expenses related to investing, such as an annual subscription to a magazine, may also qualify for a write-off.
— Don’t itemize – take the standard deduction.
Many retirees are not eligible for the itemized deductions that working individuals can claim. As such, it’s wise to claim the standard deduction each year. In fact, taxpayers aged 65 and over are often eligible for a higher standard deduction than others, so why not take advantage of this perk that comes with age?
— Claim QCDs from your retirement accounts.
The tax-free Qualified Charitable Distribution (QCD) which (QCD) can lead to huge tax savings for retirees. If you’re 70½ years of age or older, you may be eligible to exclude from your income distributions up to $100,000 that you pay to a qualifying charitable organization from your Individual Retirement Account (IRA). This income exclusion strategy can greatly benefit retirees who must take distributions from their retirement accounts – and for those whose homes have been paid off and can no longer deduct mortgage interest or claim other big tax breaks.
— Downsize your residence.
Countless retirees downsize their living quarters simply because they can’t maintain a large home any longer. But there’s also a tax benefit to doing this. If you decide to put your house on the market, even if you have built up a good amount of equity over time – you may be exempt from paying taxes on the money you make through this sale. More specifically, if you’ve lived in your home for at least 2 out of the 5 years prior to selling your house, any profit up to $250,000 for individual filers and $500,000 for joint filers is not considered taxable income.
For more tax tips for retirees, turn to the accountants at 1-800Accountant. Call 1-800-222-6868 or visit www.1-800Accountant.