As they say, nothing is guaranteed except death and taxes. However, as you come closer to the end of your life you will want to do whatever you can to have enough resources to enjoy your retirement years. This means minimizing your tax liabilities during your later years so you can have more capital to maintain the quality of life you desire.
The following are various ways you may be able to decrease your tax bill leading up to and during your retirement years.
Higher standard deduction
If you are like many people and do not itemize your deductions, you normally take the standard deduction amount. How much the standard deduction is usually depends on if you are single, married or filing as head of the household. However, the standard deduction is higher for those who are 65 years or older.
Shelter more income
Putting money into a 401(k) retirement account is a great way to shelter your income from tax liabilities. But there is a legal limit to how much income you are allowed to put into your 401(k) each year. For those under 50 years of age, for 2021 the limit is $19,500. However, if you are over the age of 50, you have a higher limit of $26,000 which allows you to start sheltering more income as you get closer to your golden years.
Medical expenses deductions
As you grow older it is likely your medical expenses will start to increase as your body ages. Fortunately, you are able to deduct a certain amount of your medical expenses in order to help mitigate the costs by lowering your federal income tax bill. All medical expenses above 7.5% of your adjusted gross income are eligible to be deducted on your federal tax returns.
Also, if you purchased long-term care insurance, you may be able to add a certain amount of your premiums to your deductions. How much you are allowed to deduct will depend on your age.
Selling your primary residence
Usually, when you sell real estate you are subject to capital gains tax if the value of the property has appreciated since you bought it. However, if you are selling your primary residence that you live in you are able to deduct from your federal tax return up to $250,000 of capital gains from selling your home if you are single. If you are married the deduction limit increases to $500,000.
This can be useful for those who are retired that want to move into a smaller home and therefore wish to sell their current primary residence.
Start planning immediately
It is important to make decisions strategically in order to prepare for retirement. This includes, not only taking available actions for minimizing taxes, but also proper budgeting and investment planning. One effective option may be to consult with an expert wealth management advisor who can help you with your family financial planning endeavors.
Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.