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December 20, 2016 at 05:08 AM
If your clients are retiring this year — or planning to in the near future — they have some opportunities to cut your their tax bill that they shouldn’t miss.
That’s according to Kiplinger, which not only rounded up nine little goodies that every soon-to-retire person should be aware of, but also pointed out that it’s easy to overlook such breaks that come with a change in laws, or with a change in status or age.
And there are so many details to follow up when retirement is imminent that unfamiliar advantages can get lost in the shuffle.
Of course, not everyone will be able to claim every one of these — and for some, you may not want to (for instance, to benefit from the one for medical deductions, you have to have medical bills in the first place). That said, be sure you’re not missing something that could cut your clients’ tax bill.
No matter how much you’ve saved for retirement, a tax break will help you stretch every retirement dollar a little (or maybe even a lot) further, and what’s not to like about that?
(Related: 6 Tax-Law Time Bombs Affecting IRAs)
Here are nine tax breaks to make sure your retirement clients are taking advantage of:
9. A bigger standard deduction.
Yes, you read that right — when you turn 65 the IRS increases the amount of the standard deduction you’re entitled to.
While a single 64-year-old in 2016 is entitled to claim a standard deduction of $6,300 (in 2017 it will be $6,350), a 65-year-old gets $7,850 (which increases to $7,900 in 2017).
If that extra $1,550 puts you into the range of taking the standard deduction instead of itemizing, and if you’re in the 25% bracket, that larger deduction will save you almost $400.
Couples get bigger deductions, too, if one or both spouses are age 65 or older. For instance, if both spouses are 65 or older, the standard deduction on 2016 joint returns is $15,100, going to $15,200 for 2017.
8. Easier medical deductions.
Currently, taxpayers age 65 and older who itemize on 2016 returns get a break on taxes if their medical bills exceed 7.5% of adjusted gross income. For younger taxpayers, the AGI threshold is 10%. And if you’re married, only one of you needs to be 65 to use the 7.5 percent threshold.
But claim it now, if you can; for 2017 returns, the 10% threshold will apply to all taxpayers.
7. Deduct Medicare premiums.
You might be one of the many who decide to go back to work in retirement, but this time you’re self-employed.
And if so, once you’ve left your former employer behind, you can deduct Medicare Part B and Part D premiums, as well as the cost of supplemental Medicare (medigap) policies or the cost of a Medicare Advantage plan.
You don’t need to itemize to get this deduction, either. In addition, you also don’t have to satisfy the test of 7.5% of AGI that applies to itemized medical expenses for those age 65 and older in 2016.
But beware: if you’re eligible to be covered under an employer-subsidized health plan offered by either your employer (such as retiree medical coverage) or your spouse’s employer (if said spouse’s job provides family medical coverage), you can’t deduct those Medicare premiums.
6. Spousal IRA contributions.
Just because one of you is retired doesn’t mean the other has to stop saving for retirement.
If you’re half of a couple and one of you is still working and at least 50 years old, he or she can contribute up to $6,500 a year to an IRA that you own. Traditional IRAs allow spousal contributions up to the year you hit age 70½, while there are no age limits on a Roth.
As long as your spouse has enough earned income to fund the contribution to your account (and any deposits to his or her own), you can continue to save to boost your retirement funding levels. For both 2016 and 2017, that $6,500 cap applies.
5. Timing tax payments.
You may not realize, after years of an employer automatically deducting your taxes, that you have a choice about when to fork over the money.
But, of course, that comes with pitfalls.
