Working friends, don’t be fooled by the idea of easier taxes and lower liability when you are no longer working but retired and living on the beach, in the mountains or somewhere on a golf course. You will have just as many issues to deal with then as you do now, only they’re slightly different. Taxes will be around until the day you die, and it’s just a fact of life. You have to deal with them forever, so you might as well know as much about them as possible. If you’re already retired, whether for a long time or just recently, we have a myriad of exceptionally important tax tips you have to know. Since tax season is officially over, it’s time to focus on preparing for next year or even finishing up last year if you are one of the millions of taxpayers who filed an extension of time to delay the inevitable. We have some retirement tax tips that might make your own taxes a little bit easier to deal with – or at least as accurate as possible.
Knowing this information is going to help you with your finances, make your retirement income more profitable and keep you feeling confident in your financial life. We can help you understand a few of the most important tax-related items that can occur and benefit you in retirement, and it will go a long way to helping you financially. Read on to find out what you need to know about your taxes during retirement.
Diversify your Portfolio
The best option for retirees is to keep your portfolio diverse. This allows you to keep your tax liability as low as possible and it gives you the option to take draws from your accounts while keeping potential tax penalties low. Your investment advisor can offer you a bit more information about this kind of thing that’s personalized to your portfolio.
Consider the Reverse Mortgage
There is a lot of mixed feelings about these, but it seems that some people can use them and make them highly plausible sources of income. You’ll need a good life insurance policy, however, to cover the cost of paying this off when you pass. And you will not have to report the money you earn from this as income, which is great for your income taxes.
Take the Minimum Distribution
Some people fail to do this because they think that they don’t need it. You do need it if you want to keep your taxes low. You might face excise taxes upwards of 50% if you do not take the required minimum draws – even if you want to use that money later and therefore keep it in your accounts. Don’t do it – just transfer it to a savings account if you have to.
Get an Accountant
Sure, DIY tax software is simple and easy to use, but you aren’t going to be able to lower your liability nearly as much as you think you can. You need to be able to go ahead and work with a professional who can tell you what you need to know and do to keep your liability low and simple. Accountants should be someone you trust and can work with without issue, and you should not just settle for the first one you find.
Go to a Roth IRA
We will be honest here and tell you that when you initially transfer your funds from your 401K to a Roth IRA you will pay higher taxes. But it’s just for one year. After that you will see that your tax liability is greatly reduced, which means more savings for you. This kind of savings is substantial, even though you will take a hit at first. We would not recommend it if it was not worth the expense and the cost.
Donate, Donate, Donate
So many people are givers, whether it’s cash to your church, tithing to your church or even the excess furniture and belongings you gave to charity when you moved from that big house to a smaller home. you can deduct these expenses on your income taxes, so it’s good to keep impeccable records of all that you’ve given throughout the year. Keep records of your donations and get donation receipts from all locations so that you can be sure you are able to have them on file.
Sell Your House
Did you know that you can sell your home and move to a smaller home without paying any taxes on it? It’s a simple concept; you have to live in the house at least two years out of the five before selling and you can do this. It’s up to $250,000 for singles and double that for married couples of retirement age. Selling is not something you should avoid doing because you are worried about the tax implications of doing so. Go ahead and make it a point to sell your home if you meet these qualifications and it will benefit you financially.
Deduct your Professional Fees
As a retiree, you probably have an attorney, an accountant and you probably pay fees to several other people and places. Most of these fees are completely tax deductible, so you’re going to want to keep that in mind when you are doing your income taxes after retirement.
Claim Your Medical Expenses
As a senior, you probably pay more medical expenses now than ever before. You can deduct a large number of these, and we highly recommend that you do so that you can keep your tax liability low and your income higher.
Know the Standard Deduction
Anyone over the age of 65 is entitled to a substantially larger standard deduction – if you do not itemize your deductions on your income tax return – than those younger than 65. And since your birthday is considered the day before your actual birthday by the IRS, you can take the larger standard deduction if your birthday is January 1 for the prior tax year.
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