Many folks are surprised when they take a good look at their financial situation as they approach retirement. Many seniors have neglected their financial planning, don’t have defined pension plans and have not put enough money into other retirement funds, such as IRA and 401(k). To maximize your outcome here are some senior tax breaks that may help you or yours.

• Standard deductions

The standard deduction is available to you if you do not itemize your deductions. The standard deduction increases if you attain the age of 65 during the tax year. You may be able to claim a higher standard deduction if you are blind (corrected vision less than 20 20 or have an extreme limitation in your field of vision).

If you are age 65 or older, you may increase your standard deduction by $1,600 if you file Single or Head of Household. If you are Married filing jointly and you or your spouse is 65 or older, you may increase your standard deduction by $1,300.

The IRS offers some tax breaks that may save a senior citizen some money. These tax breaks are designed to stimulate investment, encourage certain purchases (like electric vehicles through rebates), and save seniors money. If you have questions about ways for seniors to save taxes talk to an accountant or attorney.

• Sell Your Home

There are so many reasons seniors might consider selling their home. Downsizing empty nests, generating retirement funds, heading to a different climate or moving to be near children and grandchildren are examples.

Your home is probably worth a lot more now than when purchased and you likely to have build up a good deal or equity. If you have lived in your home for at least two of the five years prior to selling it, you may not have to pay taxes on any profit from its sale. Tax laws allow a single filer to claim up to $250,000 in profit on a home sale with no taxes, and up to $500,000 for a married couple filing together.

• Retirement Account Contributions

You may continue to make contributions to your retirement accounts, like IRA and 401(k), even if you are retired or semi-retired. This may be one of the best senior tax breaks available, especially if you plan to use these accounts to fund your retirement.

The tax laws are such that people aged 50, and over, have higher limits on what they can contribute to retirement accounts.

The annual contribution limit for 2019 is $6,000, or $7,000 if you’re age 50 or older. The annual contribution limit for 2015, 2016, 2017 and 2018 is $5,500, or $6,500 if you’re age 50 or older. Your Roth IRA contributions may also be limited based on your filing status and income.

You cannot make regular contributions to a traditional IRA in the year you reach 70½ and older. However, you can still contribute to a Roth IRA and make rollover contributions to a Roth or traditional IRA regardless of your age.

If you file a joint return, you may be able to contribute to an IRA even if you did not have taxable compensation, provided your spouse did. The amount of your combined contributions cannot be more than the taxable compensation reported on your joint return.

In addition to contributions to IRA accounts, you may also make contributions to Roth IRA accounts. You will pay taxes on the money you contribute to such an account, but you will not pay taxes on the money that you withdraw. This means that interest on gains during its time in the Roth IRA account is tax-free.

• Business Expenses Incurred

You may be able to write off business expenses as one of your senior tax benefits if you own a business when you retire, or plan on starting a business of your own. The expenses must be necessary and reasonable. Typical business expenses include travel, business-related equipment, office rent (home or office building), supplies and more.

• Make Charitable Contributions

You may deduct charitable contributions of money or property made to qualified organizations if you itemize your deductions. Generally, you may deduct up to 50 percent of your adjusted gross income, but 20% and 30% percent limitations apply in some cases.

You may deduct a charitable contribution made to, or for the use of, any of the following organizations that otherwise are qualified under section 170(c) of the Internal Revenue Code:

1. A state or United States possession (or political subdivision thereof), or the United States or the District of Columbia, if made exclusively for public purposes;
2. A community chest, corporation, trust, fund, or foundation, organized or created in the United States or its possessions, or under the laws of the United States, any state, the District of Columbia or any possession of the United States, and organized and operated exclusively for charitable, religious, educational, scientific, or literary purposes, or for the prevention of cruelty to children or animals;
3. A church, synagogue, or other religious organization;
4. A war veterans’ organization or its post, auxiliary, trust, or foundation organized in the United States or its possessions;
5. A nonprofit volunteer fire company;
6. A civil defense organization created under federal, state, or local law (this includes un-reimbursed expenses of civil defense volunteers that are directly connected with and solely attributable to their volunteer services);
7. A domestic fraternal society, operating under the lodge system, but only if the contribution is to be used exclusively for charitable purposes;
8. A nonprofit cemetery company if the funds are irrevocably dedicated to the perpetual care of the cemetery as a whole and not a particular lot or mausoleum crypt.

Contributions must actually be paid in cash or other property before the close of your tax year to be deductible, whether you use the cash or accrual method.

If you donate property other than cash to a qualified organization, you may generally deduct the fair market value of the property.  If the property has appreciated in value some adjustments may have to be made.

In general, contributions to charitable organizations may be deducted up to 50% of adjusted gross income computed without regard to net operating loss carrybacks.  Contributions to certain private foundations, veteran’s organizations, fraternal societies, and cemetery organizations are limited to 30% of adjusted gross income (computed without regard to net operating loss carrybacks).

The 50% limitation applies to all public charities, all private operating foundations, certain private foundations that distribute the contributions they receive to public charities and private operating foundations within 2 1/2 months following the year of receipt, and certain private foundations the contributions to which are pooled in a common fund and the income and corpus of which are paid to public charities.

The 30% limitation applies to private foundations other than those previously mentioned that qualify for a 50% limitation, and to other organizations described in section 170(c) that do not qualify for the 50% limitation, such as domestic fraternal societies.

A special limitation applies to certain gifts of long-term capital gain property.  A discussion of that special limitation may be found in Publication 526, Charitable Contributions.

• Medical and Dental Expenses

Healthcare and the associated costs are growing concerns for seniors and retirees over the age of 50. Some sources estimate these costs could be as much as 30 percent of income and will encompass healthcare insurance premiums, prescription drugs and other health related expenses. For some, many of these expenses are tax deductible.

According to IRS Publication 502 (for 2018): Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part or function of the body. These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. They include the costs of equipment, supplies, and diagnostic devices needed for these purposes.

Medical care expenses must be primarily to alleviate or prevent a physical or mental disability or illness. They don’t include expenses that are merely beneficial to general health, such as vitamins or a vacation.

Medical expenses include the premiums you pay for insurance that covers the expenses of medical care, and the amounts you pay for transportation to get medical care. Medical expenses also include amounts paid for qualified long-term care services and limited amount

If you itemize your tax deductions, rather than taking the standard deduction, you may be able to deduct your out-of-pocket medical expenses on your income taxes on a Schedule A. You are allowed to deduct any expenses that exceed 7.5% of your adjusted gross income.

• Investment Expenses

Probably the most common way for seniors to make money is in the form of interest, dividends or capital gains on investments. This income is taxed at a much lower rate and is not subject to taxes for Social Security or Medicare.

Deductions may be made for expenses related to your investments, such as costs related to investment advice. If these costs exceed 2% of your adjusted gross income you may be able to include these costs in your itemized deductions. These expenses could include things like:Safe deposit box fees

1. Accounting fees
2. Attorney fees
3. Fees for subscriptions to investment newsletters
4. Fees for online brokers
5. Cost of home computers and/or equipment for investment needs
6. Fees paid to financial planners

You may not include the commission fees you pay to brokers or agents to acquire investment property in your deduction. This cost is part of the cost-basis of the property.

Note: The information in this article was taken from sources deemed reliable and should not be used as a final source for information. We recommend you consult with a lawyer or tax accountant to determine what is best and legal for you.

The post Tax Issues Facing Seniors appeared first on Mary Beth Woods.

We all know that California is a beautiful place to live but taxes are high and property taxes can be a challenge to some residents, especially seniors.

Fortunately, the state offers a variety of property tax exemptions for individuals 55 and older.

The problem is complicated because many homeowners are not aware of property exemption rules in their area. Each county in California can levy its own special taxes and assessments so that it is easy for many homeowners to get confused and even easier to miss out on tax breaks on their property taxes.

If you are a senior or are caring for one who is incapable of filing their own taxes, for whatever reason, you will want to know which deductions and credits might save you thousands in taxes.

Here are some of the most common property tax exemptions for seniors and how to determine whether you’re eligible for them.

California Propositions 60 and 90

Propositions 60 and 90 are laws that allow homeowners 55, or older, to move into a new home without substantially increasing their property tax obligation.

How?

Because of Proposition 13, your home’s appraised value is determined at the time you buy it and raises to that value are limited to a maximum of 2% through that same proposition. Through Propositions 60 and 90, you can transfer that same valued tax obligation so long as your new property is of equal or lesser value than the original property sold.

Here is an example

If you bought a home 10 years ago for $300,000 its current assessed value is about $365,698 now. If we assume your tax rate is around 1.25% you are paying $4,571 in taxes yearly. If you sell that home for $700,000 and move into a new place valued at, say, $650,000, you would still only pay the tax obligation for a $365,698 house (and 2% more each year).

If Propositions 60 and 90 were not in force, you would be paying $8,125 each year in taxes instead of $4,571. This allows seniors to move and be much cheaper and more feasible, especially for those who are on fixed income, such as Social Security or income off an investment portfolio.

What is the difference between Prop 60 and Prop 90?

Proposition 60 allows you to transfer the property value and the associated tax burden only within the same county. Proposition 90 allows you to do this in different counties, but only if those counties have opted into the program.

Counties where Proposition 90 is available (as of this writing):

Alameda, El Dorado, Los Angeles, Orange, Riverside, San Bernardino, San Diego, San Mateo, Santa Clara, Tuolumne, and Ventura. The county of El Dorado will stop taking property tax transfers through Proposition 90 on December 12th, 2018.

How do I file?

After you’ve finalized the sale of your old home and the purchase of your new one, fill out the claim form BOE-60-AH, Claim of Person(s) at Least 55 Years of Age for Transfer of Base Year Value to Replacement Dwelling, which you can obtain from your local County Assessor’s office. Here is more information from the LA County Assessor’s office.

Limitation

An individual may only use Proposition 60 or 90 once in a lifetime, unless the individual claims disability as the reason for the relocation. An individual may not use Proposition 60 or 90 a second time if disability was cited for the first use and may never be used a third time.

Parcel tax exemptions

It is not uncommon for California counties to levy parcel taxes on homeowners to pay for public services such as education and public utilities. To gain support for these taxes, counties usually allow homeowners 65 or older to file for exemptions.

The exemptions, and the procedure for filing for them, vary by county. Some require homeowners to file for the exemptions every year while others automatically apply the exemptions after the first filing. Check with your county to be sure.

How do I file?

The forms are here and there is more information here.

Check with your local tax collector’s office to find out how to apply for exemptions in your area.

Disabled Veterans

The State of California offers a tax exemption for veterans who were disabled through military service. According to the California Board of Equalization, the basic exemption for disabled veterans starts at $100,000, while low-income disabled veterans can qualify for an exemption of around $150,000 (this changes yearly according to the cost-of-living index).

For example, if the taxable value of your home is $300,000, the exemption will reduce the taxable value to around $200,000, or more, if you qualify for low-income status. This could save you hundreds of dollars in taxes over the course of a year.

How to qualify:

The person filing must meet one of the following criteria:

• Blind in both eyes
• Lost the use of two or more limbs
• Is totally disabled according to the United States Department of Veteran Affairs.

If the individual owner is deceased due to service-related injuries, the exemption is then available to the unmarried surviving spouse, even if the veteran wasn’t eligible while he/she was alive.

Fine print

The homeowner can only apply one exemption to the property. If you have the option between the homeowner’s exemption or the disabled veteran exemption, you will want to choose the later because your benefit will be greater.

Note: The information in this article was taken from sources deemed reliable and should not be used as a final source for information. We recommend you consult with a lawyer or tax accountant to determine what is right and legal for you.

The post Important California Property Tax Exemptions for Seniors appeared first on Mary Beth Woods.