Tax Deductions for the Retired
Just because you've retired from your job, it doesn't mean that you're free from the thralls of tax season. Instead of a Form W-2, you'll likely receive a Form SSA 1099, Social Security Benefit Statement (or RRB-1099 for Railroad Retirement). Additional income may make your benefits taxable by up to 85%.
Receiving distributions from a retirement savings account, pension, or annuity, will generate a Form 1099-R, Distributions. Your benefits may be either fully or partially taxable, depending on your cost basis.
Taking as many deductions as you are eligible will reduce the amount of taxes you owe and give you a better savings at tax time. If you are older than 65 or blind, you get a higher standard deduction than other taxpayers. However, itemizing your deductions may reap a larger benefit than the standard deduction. You should chose the option that gives you the biggest savings.
The following expenses can be deducted if you chose to itemize:
- State or local excise taxes, applicable to property such as cars or boats
- Interest paid on investment properties
- Tax-related legal fees
- Broker's or bank fees paid for collection of bond interest or stock dividends
- Investors costs paid to manage your investment taxes
Retirees also have the option to deduct certain medical expenses by itemizing, such as:
- Medicare B premiums listed on Form SSA-1099
- Costs for long-term care services
- Nursing home, medical care facility or assisted living expenses
- Inpatient hospital stays
- in-home or outpatient nursing service fees
- Chiropractor fees
- Lab fees and x-rays
- Eyeglasses, hearing aids, dentures, or other prosthetics, including wigs used for medical hair loss
- Prescriptions
- Walkers and other medical supplies
- Non-cosmetic dental care
- Maintenance for electric scooter or wheelchair
- Diabetes testing supplies
- Home improvements related to making the home accessible for a person with a disability
If you volunteer during your retirement, you may be able to deduct any costs you incur for the activity in which you are volunteering, provided you are not reimbursed. The IRS must recognize the organization for whom you are volunteering, and should the activity require travel, expense deductions follow the same guidelines as a business trip. Ensure you keep all your receipts to document your expenses.
The IRS also has a tax Credit for the Elderly or Disabled, which you may qualify for if you are 65 years old or more at the end the end of the tax year. In most cases, you need a qualifying child living in your home for more than half the year to claim the Earned Income Tax Credit (EITC), however married taxpayers with one spouse over 65 may qualify even without children, as long as they file jointly.
