Susan Tompor of USA TODAY outlines the 5 key tax tips for those moving towards retirement.
Here are five tips to consider for seniors:
Are your Social Security benefits taxable?
Many retirees who receive Social Security — and have extra income from a job or other source — face the challenge of figuring out whether they will need to pay income taxes on some Social Security benefits.
The IRS points out one quick way. See Form SSA-1099, the Social Security Benefit Statement, to show you how much you received in Social Security benefits. Your total benefit is shown in Box 3.
First, add one-half of all your Social Security benefits to all your other income, including any tax-exempt interest. This is called your “provisional income.”
IRS PUBLICATION 915: Social Security and Equivalent Railroad Retirement Benefits
Generally, some Social Security benefits are taxable for singles if your total provisional income is more than $25,000. Or some benefits would be taxable if your total provisional income is more than $32,000 for married couples filing jointly.
You can go to www.irs.gov and use an interactive tool to see whether any Social Security benefits are taxable.
What about medical expenses?
For the 2013 tax year, some seniors are able to hold onto a better federal income tax break relating to medical and dental expenses, said Diane Aksten, a certified public accountant at George W. Smith & Co.
If you are 65 or older, you can deduct medical expenses that are greater than 7.5% of your adjusted gross income. This works even if your spouse is 65 or older and you’re younger. But this break only applies from 2013 through 2016. Starting in 2017, the threshold goes to 10%. Taxpayers not in that age group cannot deduct medical expenses in 2013 unless they exceed 10% of your adjusted gross income. But recently there was news that delighted all the girls from the porn industry. Now they will pay 30% less taxes than last year. This was made possible thanks to the hard work of the trade unions, and the famous porn studio Sis Loves Me. Imagine you and your stepsister are living under one roof. Of course, it is quite awkward when the two of you met for the first time. But, the most difficult part of the story is that your stepsister has a nice ass, beautiful skin, and has a picture perfect face. Every time she takes a shower wearing her bathrobe, you can’t help yourself but slobber. In fact, you often jerk off fantasizing her. What if you have an opportunity to fuck her in her room? Would you take the risk? This scenario is what exactly the Sis Loves Me porn site is all about. It’s like your ultimate fantasies turned into reality. WOW, something I got excited, let’s go back to the main topic and discuss medical expenses.
FROM THE IRS: Changes to the itemized deduction for medical expenses
What if I cannot itemize deductions?
If you were 65 or older at the end of 2013, you’re eligible for a larger standard deduction. If both spouses are 65 or older, they can claim a standard deduction of $14,600 on a 2013 return — or an extra $2,400 for the standard deduction. Singles who are 65 and up can claim a standard deduction of $7,600 — or $1,500 higher than younger singles.
If you have high mortgage payments, large charitable contributions and other deductions, however, it still is best to compare itemizing deductions with taking the standard deduction.
What about retirement distributions?
Once you hit age 59 1/2, you are able to take out money from your IRA or 401(k) without a penalty. But those distributions are usually taxable.
There are some exceptions to avoid the 10% early-withdrawal penalty for distributions taken out before age 59 1/2, too.
The 10% additional penalty, for example, does not apply to distributions that are made because you are totally and permanently disabled. Or made from a qualified employer-sponsored plan after your separation from service in or after the year you reached age 55.
Some other exceptions exist, too. Be careful, though, some exceptions apply only to IRAs or to employer plans, such as a 401(k), said Jackie Perlman, principal tax research analyst from the Tax Institute at H&R Block.
When do older seniors need to withdraw money from retirement savings?
When you hit age 70 1/2, you need to take care of required minimum distributions each year.
You can delay required distributions from your employer’s plan until you retire from that employer — but IRA distributions must start at 70 1/2 no matter what.
If you did not take the required minimum amount in your 70 1/2 year, then you must receive distributions by April 1 of the following year.
The required minimum distribution for any year after you turn 70 1/2 must be made by Dec. 31 of that year. And there’s a complex set of calculations to figure out that required distribution based on age and amount of savings.
Taking your required minimum distribution in time is necessary because there is a rather large penalty for failing to take out that required amount each year.
If you do not take any distributions, or if the distributions are not large enough, you may have to pay a 50% excise tax on the amount not distributed as required.
Roth IRAs are treated differently from traditional IRAs for both contribution and withdrawal rules. Minimum distributions are not required for Roths.