The Countdown to Tax Day

By March 18, 2016Lifestyle

If you are like me, you have procrastinated organizing your paperwork for tax time and now it’s crunch time with just a few weeks away to file! If you are retired, do you still have to file an income tax return?   All senior citizens who have reached retirement age need to know the answer to this question. You may or may not, but don’t assume anything. If you don’t find the answers that fit your particular scenario in the information provided, please don’t hesitate to contact your accountant or the Internal Revenue Service for more in-depth answers on preparing for this year’s tax season.

When seniors must file

If you are unmarried and at least 65 years of age, then you must file an income tax return if your gross income is $11, 850 or more. However, if you live on Social Security benefits, you don’t include this in gross income. If this is the only income you receive, then your gross income equals zero, and you don’t have to file a federal income tax return. But if you do earn other income that is not tax-exempt, then each year you must determine whether the total exceeds $11,850. If you are married and file a joint return with a spouse who is also 65 years old, then the threshold amount decreases to $21,850. Keep in mind that these incomes thresholds only apply to the 2015 tax year, and generally increase slightly each year.

You may qualify for additional tax credits

You may qualify for the Credit for the Elderly or Disabled if you and your spouse are at least 65 years or are considered permanently and totally disabled. You must meet certain income qualifications found by completing a “long form” (form 1040-A). You will not find the credit on the “short form” (form 1040EZ), so if you think you may qualify, make sure you use the correct form.

Retirement plan contributions

Just because you are retired or semi-retired doesn’t mean that you can’t make tax-deductible contributions to retirement plans, such as IRA’s. Those over 50 have higher contribution limits for traditional IRS, Roth IRA, and 401(k) accounts.

Or, you may prefer to contribute to a Roth IRA. You’ll pay taxes on the income you contribute now. But the withdrawals upon retirement are tax-free. This means no tax needs be paid on all the interest or other income earned by your Roth IRA investments.

Medical and dental expenses

Medical and dental expenses are often some of the largest expenses for retired people. Fortunately, some of these expenses are deductible. These include health insurance premiums (including Medicare premiums), long-term care insurance premiums, prescription drugs, nursing home care, and most other out-of-pockets health care expenses.

If you itemize your deductions, medical and dental expenses are deductible from your income taxes on Schedule A of your tax return. However they are subject to a limit. For many years, the limit was 7.5% of a taxpayer’s adjusted gross income (AGI), meaning that those expenses in excess of 7.5% of taxpayers AGI were deductible. For example, if someone’s AGI was $100,000, only those medical and dental expenses above $7,500 (7.5% x $100,000 = $100,000.00 $7,500) would be deductible.

The rules for deducting medical expenses changed in 2013. Under the new rules, only medical and dental expenses in excess of 10% of a taxpayer’s AGI are deductible. Under the prior rules, the threshold was 7.5% so taxpayers could deduct more of these expenses. In creating the new rules for deducting medical expenses, Congress exempted people 65 and older from the 10% threshold increase until 2017. Thus anyone age 65 or older can use the 7.5% threshold for deducting medical and dental expenses for any tax year ending before January 1, 2017, as long as the taxpayer or his or her spouse was age 65 during or before the tax year.

Don’t assume that you don’t have to file

While it’s true that Social Security income is generally not taxable, that’s not true in all cases. If you have income in addition to your benefits, you may have to file a return even if none of your benefits are taxable. For more on who must file a return, visit the Internal Revenue Service website at www.irs.gov.

Be aware that a lot has changed. The tax code is constantly changing, and these changes may affect you. In fact, a significant percentage of changes to the code in recent years involves retirement accounts and tax credits. Before you file, prepare a list of questions for your accountant, or if you file your tax returns on your own, be sure to check the IRS website for any changes that may affect you this year that haven’t in the past.

Share with us any tax tips you learn about this year that might help your friends and neighbors before they file their taxes this season.

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