“The Boomer” is a column written for adults nearing retirement age and those already in their “golden years.” It will also promote reader interaction by posting e-mail responses and answering reader questions. E-mail your questions or topic ideas to email@example.com.
I made a decision this year not to wait until the April 15 to prepare my tax return for 2011. I wanted to skip the frantic running around and the chance of missing a deduction or getting something wrong because I was in a rush. It worked out well.
Despite the holiday season being in full swing, tax planning experts say now is the time to do a little prep for next year’s tax season. Now seems like as good a time as any to review my tax liabilities, look into tax credits, deductions and anything else that can help me to give only my fair share on my return and not a penny more to Uncle Sam.
In order for me to be prepared to do a thorough financial check before next April, I reached out to TurboTax’s Vice President and CPA, Bob Meighan, and asked for some tax tips to help boomers maximize their tax refund.
Here is what Bob had to say:
Boomer: What specific tips can you give to the boomer generation and what they need to do to get ready for the tax season?
Meighan: The boomer generation is a rather broad group of people, and as I look at this group, I think that they are getting close to retirement age and saving for retirement is important.
The first thing I would encourage them to do is consider investing in a retirement plan like an IRA or a 401(k) plan. They both allow you to save money tax free; funds are not taxed until they are taken out. If you are 50 years or older, you can contribute an additional $1,000 to your IRA this year, allowing you a total contribution of about $6,000.
For people with Flexible Spending Accounts through their employer, they should use the money in the account because any remaining funds will be lost at the start of the year. If you have money left you may want to go out and make purchases like over-the-counter medications that you would have had to buy anyway, but it will be cheaper by using the dollars that you have already contributed.
Boomer: What tax credits should boomers look for?
Meighan: Education credits tend to be associated with young adults, but boomers going back to school to further their career or start a new one may also be able to claim these credits.
For 2011, there are three educational benefits available to you through the IRS. There is the American Opportunity Credit, a Lifetime Learning Credit and there is also a tuition and fees deduction. Each of the credits has different provisions in terms of who it applies to and what expenses qualify. If you are going to school, be sure to take a look at the education credits, they are extremely valuable.
The energy credit is another deduction boomers shouldn’t overlook. There is an energy credit that expires at the end of 2011. The credit is available for up to $500 for qualifying energy purchases—things like window treatments, insulation, foam and caulking.
Boomer: There is talk of changing the tax rate and and taking away deductions. How will that impact baby boomers?
Meighan: The primary talk on Capitol Hill is of limiting deductions for home mortgage interest or property taxes and boomers tend to be heavily invested in their home, so a change would affect them greatly. It is important for boomers to keep an eye on these matters and take them into consideration when making real-estate purchases.
Given the economic and budgetary issues facing this country, boomers should be concerned about what is going to happen in the future with regards to income tax rates as well as what expenses will be allowed to be deducted going forward.
Boomer: What are the most common mistakes boomer taxpayers make when filing their taxes?
Meighan: In terms of mistakes, you are not seeing mass errors anymore because so many people now use tax software to do their taxes.
What we are finding is that some people seem to overlook valuable deductions, and tax software can help in that area as well. Given that there are three different educational benefits, many people don't know which one can be best for them; software can help determine which credits are applicable to individual filers.
People also tend to overlook deductions for mileage if they are using their car for volunteer purposes. If they are serving meals at a soup kitchen, or even dropping off items of clothing or furniture to a local charity, the mileage they incur for those purposes is deductible at the rate of 14 cents per mile.
People also underestimate the value of the things they give to charity. When it comes to donating clothing, study after study shows people underestimate the value of those items which causes them to get a smaller tax deduction. There are tools online that allow people to get an accurate assessment of what those items are worth.
Boomer: Are there any new tax laws for 2012 that boomers should keep in mind?
Meighan: Most of the changes that apply to 2012 are really about tax provisions that expire this year. As a general rule, you are going to get fewer benefits next year than you will this year so it is more of a matter of taking advantage of those tax benefits this year. At this point, it looks like the Social Security withholding on your wages is going to be at a lower rate or at least at the same low rate that it is today.
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