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What seniors need to consider at tax time

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iStockphoto.com

As more baby boomers move into their retirement years, they need to understand different tax breaks and rules, too. The AARP's online site at aarp.org/taxaide offers information on frequently asked tax questions and will let you submit questions online.

Here are five questions to consider for seniors:

1 Are your Social Security benefits taxable?

Many retirees who receive Social Security benefits and have extra income from a job or other source face the challenge of figuring out whether they need to pay income taxes on some Social Security benefits.

The Internal Revenue Service points out one quick way to figure it out.

Look at Form SSA-1099, the Social Security Benefit Statement, to see how much you received in Social Security benefits. Your total benefit is shown in Box 3.

Add one-half of all of your Social Security benefits to all of your other income, including any tax-exempt interest. This is called your provisional income.

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 IRS.gov and use an interactive tool to see whether any Social Security benefits are taxable.

2 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.

If you are 65 or older, you can deduct medical expenses that are greater than 7.5 percent of your adjusted gross income. This works even if your spouse is 65 or older and you're younger. But this break applies only from 2013 through 2016. Starting in 2017, the threshold goes to 10 percent.

3 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 or older can claim a standard deduction of $7,600, or $1,500 higher than for younger singles.

4 What about retirement distributions?

Once you hit age 59 ½, you are able to take out money from your IRA or 401(k) without a penalty. But, with some exceptions, those distributions are usually taxable.

5 When do older seniors need to withdraw money from retirement savings?

When you hit age 70 ½, 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 ½ no matter what.

If you did not take the required minimum amount in your 70 ½ year, then you must receive distributions by April 1 of the following year. The required minimum distribution for any year after you turn 70 ½ 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 percent excise tax on the amount not distributed as required.

Roth IRAs are treated differently for contribution and withdrawal rules. Minimum distributions are not required for Roths.

What seniors need to consider at tax time

03/21/14 [Last modified: Sunday, March 23, 2014 5:56pm]
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