As people retire and most likely move to a more budget conscious style of life, every expense matters. Few expenses matter more than taxes in retirement. The last thing you want is for your hard earned assets to be nickel and dimed away from you when you need it most.
Don’t worry though, your tax situation in retirement may not be as dire as you first thought.
Certain aspects of the tax code automatically lowers the tax burden for older Americans without you having to do anything. If you are 65 or over, you automatically reap some benefits.
Higher Standard Deduction
Not everyone can itemize their deductions, most people utilize the standard deduction. In fact, fewer than half of taxpayers actually itemize their returns.
As a benefit to those who do not itemize, your standard deduction increases once you reach the age of 65. In 2017, if you are over 65 and single, your standard deduction increases by $1,550. If both you and your spouse are over 65, your standard deduction increases by a combined $2,500.
Lower Medical Expense Threshold
Deducting Medical expenses is a cornerstone of the American tax system. For most Americans, medical expenses are not deductible until they exceed 10% of their adjusted gross income. However, if you are at least 65, that threshold falls to 7.5%.
Remember, that medical and dental expenses qualify if you are paying for yourself, your spouse, and even your dependent. The IRS recommends you keep records of your care, including amounts paid as well as the name and location of the provider.