Many older Americans are not taking advantage of tax deductions which could help them shore up savings for retirement, experts warn.
Major changes put in place by the Internal Revenue Service (IRS) over the past few years may have confused some taxpayers, said certified public accountant Tom Wheelwright.
Trump-era legislation brought in by the Tax Cuts and Jobs Act in 2017 made sweeping changes to the tax landscape. Then in 2022, President Biden made further modifications under the InflationReduction Act.
These pieces of legislation have brought in new tax breaks and altered existing rules.
Here's a look at some less well-known tax deductions which prove be lucrative for seniors. Together they amount to hundreds or thousands of dollars - and in some cases tens of thousands for wealthier seniors.
Major changes put in place by the Internal Revenue Service (IRS) over the past few years may have confused some taxpayers, said certified public accountant Tom Wheelwright
Donate to charity
Donating stock - or even cryptocurrency - that has gone up in value to charity can be a good way for seniors to maximize their tax benefits, said Wheelwright, founder and CEO of WealthAbility.
'You get both a deduction and you don't have to pay tax on the capital gain,' he told DailyMail.com.
Many people also overlookcharitable donations that have tax benefits other than just a standard deduction, he said.
'There are a lot of donations where you get tax credits along with a deduction or instead of a deduction,' said Wheelwright.
Tax credits directly reduce the amount of tax you owe, giving you a dollar-for-dollar reduction of your tax liability. Tax deductions, on the other hand, reduce how much of your income is subject to taxes.
'There are a lot of little donations you can make that have an impact on your state taxes, and they could also have an impact on your federal taxes,' said Wheelwright.
The credits offered differ by state, so make sure to check what is available where you live, he said.
'For example, Arizona allows a tax credit of over $1,000 on a joint return for gifts to foster care charities, over $800 for gifts to other qualified charities and over $1,300 for gifts to qualified school tuition programs.'
If you do not itemize your federal tax return then you will not get the deduction for donating to charities, Wheelwright added, so credits could be worth looking into if they are available in your state.
Donating stock - or even cryptocurrency - that has gone up in value to charity can be a good way for seniors to maximize their tax benefits
Qualified charitable distribution
At a certain age, Americans have to start taking an annual withdrawal - known as a required minimum distribution (RMD) - from their retirement plan.
The Secure 2.0 Act, which came into force this year, increased the age people have to start making contributions to 73.
If you are 73 years old or older, you could consider a qualified charitable distribution (QCD), Wheelwright said.
This is a donation which you can make directly from your IRA account, so you can avoid the taxes that come with a withdrawal and reduce the amount of RMDs you have to take.
'But if you are not old enough to have to make an RMD then it does not really help you,' said Wheelwright.
'In that case you are better off making an appreciated stock or an appreciated cryptocurrency donation.'
Extra standard deduction
Many taxpayers will claim the standard deduction to reduce their income by a preset amount: $13,850 for single filers and $27,700 for married, joint filers in 2023.
Taking the standard deduction makes sense if the amount is higher than your itemized expenses.
And in the 2023 tax year, Americans who are over the age of 65 or blind and meet certain criteria outlined by the IRS are now eligible for an extra standard deduction.
The additional standard deduction is $1,850 for single filers or those who file as head of household, and $3,000 for married couples filing jointly if each spouse is over the age of 65 - boosting the total amount to $15,700 for single filers and$30,700 for married couples.
Medicare premium deduction
'If you are self-employed, your Medicare premiums are fully deductible even if you don't itemize,' said Wheelwright.
A Medicare insurance premium is an insurance premium and it does qualify for the self-employed health insurance deduction, he added.
Wheelwright urges self-employed seniors to speak to an expert about their tax affairs.
'A self-employed individual or someone who has a business should be sitting down with a tax professional. They should not be trying to do this on their own,' he said.
IRA contributions by a spouse
Many Americans do not know that they can contribute earned income to a low-earning or non-working spouse's IRA account if they file a joint tax return as a married couple, experts say.
This works in the same way as a traditional IRA, reducing pretax income, and does not work for a Roth IRA, which is paid into with money after it is taxed.
'This spousal IRA strategy can double retirement savings for the year while reducing a couple's tax bite,'Nathan Anderson, certified financial planner at Prairiewood Wealth Management, told The Wall Street Journal.
For the 2023 tax year, married couples who file jointly can contribute $6,500 to a spousal IRA per individual for a total of $13,000.
And if they are both over 50 years old, each individual is allowed an extra $1,000 catch-up contribution to a total of $15,000.
The IRS has specific rules on who can take advantage of this - including that a working spouse must earn at least as much money as they contributed to both of the couple's IRAs.
