Most of us aren’t all that excited when tax season finally rolls in. After all, you have to collect lots of documents, crunch numbers, and try to understand and follow lots of relevant regulations. This makes many people, and especially seniors, feel overwhelmed.
You might be stuck ,because you don’t know what laws or rules have changed this year, or how to spend less money on taxes. However, a good starting point is by knowing about all the tax breaks that are available.
Tax Credits
In the case of tax credits, If you owe $2,000 dollars for income tax and qualify for a $1,000 tax break, you’ll only have to pay half as much when you file. Here are three tax credits that most senior citizens forget about even if they’re often eligible.
Lifetime Learning Credit
If you’ve paid qualifying education or tuition costs for a dependent, spouse, or yourself, you can take advantage of the Lifetime Learning Credit (LLC). The credit doesn’t come with a time limit, so it’s perfect for older adults who’ve decided to go back to school.. Any expenses that are a part of a degree or which increase your professional skills can qualify you for the LLC. (1)
American Opportunity Tax Credit
The American Opportunity Tax Credit (AOTC) is only available to those who have had to pay the first four years of a qualifying student’s educational expenses. Seniors often claim this credit when paying educational expenses for a dependant. (2)
Tax Credit for the Elderly and Disabled
Those who are permanently and completely disabled can apply for this tax credit but must fulfill certain conditions
Tax Deductibles
Deductions are what you subtract from your income prior to adding up all the taxes you have to pay, and can quickly add. Below we’ll present some of the most common tax deductibles.
Itemized Medical and Dental Expenses
If your out-of-pocket expenses for dental and medical procedures are higher than 7.5% of your adjusted gross income, you can deduct them.
Mortgage Interest Deductions
Some or perhaps all the interest you paid during a tax year for a secured debt home mortgage on a qualifying home can be deducted. Luckily, mortgage companies send Form 1098 to anyone who has paid interest on a mortgage within the tax year. (3)
Home Selling Costs
Those selling a home have to pay a capital gains tax, but you can lower this tax by factoring in the cost of selling your house before adding up the total profit or gain. Unfortunately, this isn’t always easy to calculate, so it’s best that you hire a professional.
Refinancing Points
Anyone who’s paid mortgage refinancing points should be able to use the home mortgage interest deductible. A number of conditions have to be met before a person qualifies, and it is well worth it if you’re eligible, but a tax professional will have to guide you through it.
Charitable Deductions (Out-Of-Pocket)
Donations made to eligible non-profit groups might qualify you for a charitable deduction. It’s best to work with charitable organizations that send an annual record of donations come tax time. To know which donations are deductible and how it’s best to record them, read the relevant IRS publications. (4)
Self-Employed Deductible Medicare Premiums
Self-employed seniors that pay Medicare premiums for themselves, their dependents, or their spouses, might qualify to deduct those expenses from annual taxes. However, expenses are equal or less than the self-employed person’s income.
Deduction for Long-Term Care
Tax deductions on premiums are also possible for those with a long-term care insurance plan, but different rules and limits apply.
Tax Advantages
Specific forms of investment accounts can be eligible for economic bonuses called tax advantages which are supposed to boost the economy. They’re important for anyone with significant investments.
Waiver of Penalty
Sometimes people pay fewer taxes by mistake because their investment income was higher than what they were expecting. The IRS is likely to waive penalties for underpayment if you can pay 90% of what you own for the tax year in question. (5)
Reinvested Divides
Dividends paid and reinvested in stock immediately might not have to be taxed. Most of the time, this only happens if you couldn’t get a dividend check and had to reinvest.
Social Security Tax Exemption
While they are often subject to tax, you do not have to pay taxes for the total money received from Social Security benefits, but this depends on your tax bracket. (6)
Conclusion
The best way to get tax breaks is by knowing whether you qualify for the various credits and deductions. However, doing the paperwork is quite the challenge. Hiring a professional is the best option if you want to get a bigger tax refund and reduce your total taxes.
REFERENCES:
- https://www.irs.gov/credits-deductions/individuals/llc
- https://www.irs.gov/credits-deductions/individuals/aotc
- https://www.bankrate.com/calculators/mortgages/loan-tax-deduction-calculator.aspx
- https://www.irs.gov/pub/irs-pdf/p526.pdf
- https://www.irs.gov/newsroom/irs-waives-penalty-for-many-whose-tax-withholding-and-estimated-tax-payments-fell-short-in-2018
- https://www.ssa.gov/planners/taxes.html