By the time you reach retirement, you've likely stopped qualifying to receive some of the most common tax breaks, such as dependent exemptions and the Child Tax Credit. However, there are quite a few other tax breaks that retirees may qualify for more easily than workers. Here's a sampling to get you started.
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Lifetime Learning Credit
Now that you're retired, you have the time to learn all those things you always wanted to know how to do. And the courses you take may make you eligible for a lovely tax credit.
The Lifetime Learning Credit allows you to claim a tax credit for taking post-secondary classes or classes to acquire or improve job-related skills (the latter may be an option if you have a part-time job or side gig). The amount of the credit is 20% of your qualified educational expenses for the year, up to a maximum of $2,000 per year. To get the credit, you'll need to be taking classes at a qualified educational institution and your adjusted gross income for the year must be $65,000 or below for single filers, or $130,000 or below for married filing jointly.
Medical expense deduction
The older we get, the more likely we are to run up some serious healthcare expenses. However, there is a silver lining to this cloud: having loads of medical expenses at least makes you eligible for a large tax deduction.
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The medical expense deduction does require you to itemize deductions in order to claim it, instead of taking the standard deduction. However, having a lot of medical expenses during the year may be enough right there to make itemizing worth your while. And remember that for purposes of this deduction, medical expenses don't just mean things like doctor's appointments: you can also deduct dental bills, prescriptions, quit-smoking programs, equipment like eyeglasses and hearing aids, and so on.
Charitable contribution deduction
Another itemized deduction, the charitable contribution deduction allows you to deduct both money and property that you donate to qualified charities. So if you're looking for a tax break, clean out your closets and your attic and donate everything to Goodwill or the Salvation Army.
Another way to get a tax break for doing good is to make a charitable donation straight from your IRA. You can't deduct such a donation, but you do get some other pretty nice tax benefits. For one, a transfer straight to a charity counts toward your required minimum distribution (RMD) for the year, but you don't have to pay taxes on the transfer. Thus, if your RMD is more money than you need to take for income, sending the rest to charity can save you a nice chunk on taxes. Making a donation this way also gets rid of the need to itemize your deductions, so if you're not already itemizing to collect the medical expense deduction, this approach may result in a much better deal for you.
Investment expense deduction
Once you retire, the bulk of your income is likely coming from investments. And that means that you're more likely to have investment expenses than you did in your working life. Good news: you can deduct most investment expenses on your tax return.
The investment expense deduction is another itemized deduction, and unless you have some truly enormous fees on your accounts, it's not likely to make itemizing worthwhile by itself. However, if you're already taking the previously mentioned itemized deductions, then this deduction can help sweeten the pot a bit more. Types of investment expenses that you can deduct include fees from financial advisors, investment newsletter subscriptions, IRA custodial fees (but only if you pay these fees from outside the account), fees for investment management software, fees for automatic investing services, and many more. Note, however, that you can't deduct your commissions for purchasing investments, including stocks.
How to claim your tax breaks
To claim the Lifetime Learning Credit, you'll need to fill out Form 8863 and turn it in along with your federal tax return for the year. The rest of these tax breaks are itemized deductions that appear on your Schedule A. If you have any questions about how to fill out the necessary forms, consult a tax professional – and remember, tax preparation fees are deductible as well!
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