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Over 65? Retired? The IRS may have tax benefits for you!


June 24, 2010

Often seniors overlook additional benefits accorded them by the IRS. Make sure to visit your local PRO-TAX office, and let one of our tax professionals review your situation.

If Social Security is your only source of income, then you should have no tax due. However, if you have other forms of income (such as a pension, dividends and interest), some of your Social Security income may be taxable. A tax preparer can work the calculations for you to see how much would be taxable. But even if you have no tax due, you should still file Ė you may be entitled to additional credits.

Donít forget that you must start taking distributions from your Traditional IRA by April 1st of the year following the tax year during which you reach age 70 Ĺ. If you donít, you may have to pay a 50% excise tax on the required distribution. Be careful with Roth IRAs. It may not be in your best interest to convert from a traditional to a Roth IRA as this conversion requires all taxes be paid in the year of the change. The Roth IRA will accumulate earnings tax free, but often for seniors these earnings donít exceed the taxes paid.

Medical expenses add up quickly. Keep track of all medical expenses paid during the year. Have a folder or envelop to keep all of your medical-related receipts. Bring them with you for your tax preparer. Most pharmacies will provide you with a list of all prescriptions purchased during the year, and often doctorsí offices will provide you with an end-of-year statement if you are unable to find your receipts. Donít forget to keep receipts for medical devices (canes, eyeglasses, etc) and dental visits too.

If you do not itemize your deductions, you can get a higher standard deduction amount if you and/or your spouse are 65 years old or older. You can get an even higher standard deduction amount if either you or your spouse is blind.

You may also be eligible to receive the Credit for the Elderly or Disabled. The Credit is based on your age, filing status and income. You may be able to take the Credit if you and/or your spouse are either 65 years or older; or under age 65 years old and are permanently and totally disabled, dependent upon your income and filing status.

You may be able to exclude from tax any gain up to $250,000 ($500,000 on a joint return in most cases) on the sale of your main home. Make sure you keep any receipts for upgrades to your home, including any improvements made for disabilities (grab bars, chair lifts, etc). They may be used to offset the gain.

Long-term care insurance contracts generally are treated as accident and health insurance contracts. Amounts you receive from them (other than policyholder dividends or premium refunds) generally are excludable from income as amounts received for personal injury or sickness. However, the amount you can exclude may be determined by your income level.

Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract. If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Generally you receive an amount that is equal to or less than the amount you paid in.

A reverse mortgage is a loan where the lender pays you (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home. Depending on the plan, your reverse mortgage becomes due with interest when you move, sell your home, reach the end of a pre-selected loan period, or die. Because reverse mortgages are considered loan advances and not income, the amount you receive is not taxable. Any interest (including original interest discount) accrued on a reverse mortgage is not deductible until you actually pay it, which is usually when you pay off the loan in full.

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