As you approach retirement, it’s time to focus on your financial game plan and make sure you’re maximizing your tax advantages –– especially if you’re expecting a large payout. Every deduction can make a difference in your “final score”. Whether it’s covering medical expenses, paying property taxes, or making charitable donations, these tax breaks can help you keep more of what you’ve worked hard for. Here are the top 10 deductions to consider, so you can stay ahead of the game and minimize your tax burden in retirement.
1. Medical and Dental Expenses
You can deduct medical and dental expenses that exceed 7.5% of your adjusted gross income (AGI). This includes insurance premiums, prescription drugs, long-term care costs, and other medical expenses.
2. Standard Deduction for Seniors
If you are 65 or older, you are eligible for a higher standard deduction. For 2024, this additional deduction is $1,850 for single filers and $1,500 for married couples filing jointly, per eligible person.
3. Retirement Plan Contributions
Contributions to retirement plans like a 401(k) or 457(b) plan may still be deductible if you have earned income or have started a second career. Contributions reduce your taxable income up to the allowable limits, depending on your age and income.
4. Charitable Contributions
If you itemize deductions, you can deduct charitable donations made in cash or property. Retirees over 70½ can also make a Qualified Charitable Distribution (QCD) from their IRA, which counts toward their required minimum distribution (RMD) but isn’t included in their taxable income.
5. State and Local Taxes (SALT)
You can deduct up to $10,000 ($5,000 if married filing separately) of state and local income taxes or sales taxes, along with property taxes, from your federal taxable income.
6. Investment Interest Expense
If you borrowed money to invest in taxable investments, you can deduct the interest expense up to the amount of net investment income you report.
7. Mortgage Interest
If you still have a mortgage on your primary or secondary home, the interest is generally deductible on loans up to $750,000 (or $1 million for loans taken before December 15, 2017).
8. Long-Term Care Insurance Premiums
Premiums paid for qualified long-term care insurance policies are deductible, up to certain limits based on your age. For 2024, the limit ranges from $480 (for those under 40) to $5,960 (for those over 70).
9. Tax Preparation Fees and Investment Expenses
Some investment expenses and tax preparation fees may be deductible if they exceed 2% of your AGI. However, these deductions are subject to limitations and might not be available depending on current IRS rules.
10. Business Expenses for Part-Time Work or Consulting
If you are working part-time or doing consulting, you can deduct ordinary and necessary business expenses related to that work, such as home office expenses, supplies, travel, and mileage.
These deductions can help reduce taxable income and save money on taxes, depending on individual circumstances and tax filing strategies. Always consult a tax professional for personalized advice.
