January 1 is right around the corner, and that means we’re in the middle of a very beautiful, magical time of year. That’s right – tax season!
Wait, what? “That’s impossible,” you say. Everyone knows tax season is in the spring, not in December.
Well, yes – technically, that is true. However, this is a very special time for taxes if your senior wants to make the most of any deductions before year’s end. Since the elderly often have specific items that are eligible for deductions, here’s a list of our most important tax tips for seniors.
Elderly tax benefits you need to know
Medical and dental expenses
One of the biggest tax tips for seniors comes from one of their biggest expenses: medical care, including dental. A large portion of their income goes towards insurance premiums, co-pays, prescriptions, and other health-related expenses. If your senior itemizes their tax deductions (i.e., doesn’t take the standard deduction), then they may be able to deduct these out-of-pocket, unreimbursed expenses.
Selling a house
If your senior is selling their house this year (perhaps to move to a retirement community or enter long-term care), this is another possible tax deduction you need to be aware of. If your loved one has been living in their home for decades, it’s very likely worth a lot more now than when they bought it. With all the equity they’ve built up, they may not have to pay taxes on any profits made from the sale. As long as they lived in the home for two out of five years before they sold it, single filers can claim up to $250,000 in profit with no taxes, and married couples can claim up to $500,000.
Many people enjoying their golden years are still making money from their investments. However, with investments come related expenses. Your senior may be paying a professional for investment advice, for instance. And while no one likes to spend more money than they have to, the good news is that if such expenses exceed more than 2% of the senior’s AGI (Adjusted Gross Income), they may be able to put these on their list of itemized deductions as well.
Examples of additional investment-related expenses include:
- Accountant, lawyer, or other financial planner fees
- Online brokerage fees
- Safety deposit box fees
- Investment newsletter subscriptions
- Investment collection fees
- Cost of equipment to manage investments (including a personal computer)
Contributions to charity
One of the reasons the elderly population is so special is that they are often very generous when they can be. For instance, many regularly help out others in need by contributing to charities. But what they may not realize is that their thoughtful donations may also be tax deductible!
There are a few limits on this, however. If the senior’s donation was made in cash, the deduction only goes up to 50% of their AGI. If property was donated, only the fair market value is typically deducted. And if the charity plans to sell the donated property, then the deduction is limited to the gross proceeds of the sale on items where the claimed value is over $500.
Apply these tax tips for seniors now
If you’re in charge of helping a senior with their finances, it’s important to make the most of the above tax tips now, while your senior can still benefit from them. So if you can help them schedule in major medical appointments, house sales, or charitable contributions soon, don’t hesitate to do so. Remember — after 11:59 on December 31, they’ll have to wait to until the following tax year to apply those deductions. But with a little digging and some savvy, you can see that your loved one enjoys more financial security – a benefit that’s tax-free!
**Please note that the above article is not intended to substitute as tax advice. If you have questions about your senior’s specific tax situation, please consult a certified professional, such as an accountant.
If you are unsure of how to best help an aging loved one, the trained and compassionate staff at the Institute on Aging is here to help you make that decision and gain the best in at-home senior care. Contact us to find out more.