{"id":353973,"date":"2021-01-07T09:31:03","date_gmt":"2021-01-07T14:31:03","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/tax\/federal-taxes\/top-seven-senior-tax-breaks.html"},"modified":"2021-01-07T09:31:03","modified_gmt":"2021-01-07T14:31:03","slug":"top-seven-senior-tax-breaks","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/tax\/federal-taxes\/top-seven-senior-tax-breaks.html","title":{"rendered":"Top Seven Senior Tax Breaks"},"content":{"rendered":"\n
\n \n
\n

Top Seven Senior Tax Breaks<\/h1>\n
\n
\n By FindLaw Staff<\/a> | Legally reviewed by Maddy Teka, Esq.<\/a>\n | Last updated\n
\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
\n

This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
\n

The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n

\n

As we all grow older, it is often a shock to realize how little money we actually have stored away for our golden years. This is particularly true now that most people don’t have defined pension plans and typically don’t put enough money into other retirement funds (such as IRAs and 401(k)s). <\/p>\n\n <\/div>\n\n

In order to hang onto this money as best as you can, here are the top seven senior tax breaks. See Ten Ways to Lower Your Taxes<\/a> for other suggestions.<\/p>\r\n

1. Medical and Dental Expenses<\/h2>\r\n

There are growing concerns that one of the biggest costs to seniors and retirees over the age of 50 in the coming years is going to be healthcare. Perhaps as much as 30% of our income will be going to healthcare premiums, prescription drugs, and other expenses related to our health. However, for some, many of these expenses are tax deductible.<\/p>\r\n

If you are a person that itemizes your tax deductions<\/a> (meaning you do not take the standard deduction<\/a>), you may be able to deduct your out-of-pocket medical expenses on your income taxes on a Schedule A. However, this is not to say that you can deduct all of your medical and dental expenses. Instead, you are only allowed to deduct any expenses that exceed 7.5% of your adjusted gross income<\/a> (AGI). To clarify this, it is helpful to look at an example.<\/p>\r\n

Suppose that your adjusted gross income for 2019 was $150,000 and that you have receipts for medical and dental expenses totaling $15,000. You would only be able to deduct $3,750 from your taxes, which is the amount that your medical and dental expenses exceed 7.5 percent of your AGI. 7.5 percent of $150,000 = $11,250, and $15,000 – $11,250 = $3,750.<\/p>\r\n

2. Home Sale<\/h2>\r\n

It may be that you would like to sell your home once you retire because you want to move, perhaps to a warmer climate with more golf courses! Your home may be worth much more now than it was when you bought it, meaning you could have substantial equity built up in your home. If you 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 you realize from its sale. The tax laws<\/a> 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.<\/p>\r\n

3. Contributions to Your Retirement<\/h2>\r\n

Even if you are retired or semi-retired, this does not preclude you from making tax-deductible contributions to your retirement accounts, like IRAs<\/a> and 401(k)s. This is perhaps one of the best senior tax breaks available, as you may need to live off your retirement funds. The tax laws are written in such a way that people over 50 have higher limits on what they can contribute to retirement accounts versus those under 50. As an example, a married couple over 50 can contribute as much as $26,000 to an IRA (for the 2020 tax year) and deduct that amount from their income tax, while a married couple under 50 can only contribute up to $19,500.<\/p>\r\n

In addition to contributions to IRA accounts, you can also make contributions to Roth IRA accounts. Although you will pay taxes on the money you contribute to such an account, you will not pay taxes on money that you withdraw from it. This means that any interest that the money gains during its time in the Roth IRA account is tax-free.<\/p>\r\n

4. Expenses Related to Investments<\/h2>\r\n

Perhaps the best way to get money after you reach senior status or are retired is in the form of interest, dividends, or capital gains<\/a> on investments. This income is taxed at a much lower rate, typically 15%, and is not subject to taxes for Social Security or Medicare.<\/p>\r\n

Additionally, if you have expenses related to your investments (like costs related to investment advice) that exceed 2% of your AGI, you may be able to include these in your other itemized deductions. These expenses could include things like:<\/p>\r\n