“Retirees preparing to file their taxes for this year should be aware of a number of common pitfalls, often-overlooked deductions and changes that stem from the tax overhaul two years ago.”
Did you know that there is a new federal income-tax form for seniors designed to make filing taxes easier this year, especially for those who don’t file electronically? It offers a larger font for easier reading and includes a chart designed to help taxpayers calculate their standard deduction. However, that’s not all that has changed. The Tax Cuts and Jobs Act of 2017 (TCJA) has made for many changes that are often overlooked, reports Barron’s in the article “Retiree Taxes: Pitfalls, Overlooked Deductions, Social Security Withholding”
People who turn 70½ in 2019 may take their required minimum distribution as late as April 1, 2020. However, they must take their 2020 distribution by December 31, 2020, and a double distribution in one year may bump them into another tax bracket. Start planning now for your 2020 distributions. Here are more tips for the coming tax year.
Standard Deduction. Many itemized deductions from 2018-2025 have been eliminated or restricted, and the standard-deduction thresholds were raised. For many taxpayers, itemizing deductions simply doesn’t pay, especially for anyone who has paid off their mortgage and can’t include interest in their deductions. However, there is a way for seniors to benefit from charitable distributions. Those 70½ or older can donate up to $100,000 from their IRAs or Roth IRA directly to a charitable organization and that donation is not counted as taxable income. Note that the contribution must come directly from the custodian on the taxpayer’s behalf.
Medical Expenses. The threshold for medical expenses in tax year 2019 will revert to the prior level, after it was lowered in 2017 and 2018 by the new tax law. For 2019, taxpayers can deduct unreimbursed medical-care expenses that exceed 10% of their adjusted gross income—their taxable income minus any adjustments to include such as deductions, contributions to Health Savings Accounts, or contributions to traditional IRAs, among others.
Social Security Benefits Taxes. Whether Social Security benefits are taxable or not depends on the filer’s income level. If the person’s combined income—their adjusted gross income plus any tax-exempt interest plus half of their Social Security benefit—is more than $25,000 for those filing single, head of household or a qualifying widow or widower with a dependent child, or more than $32,000 for joint filer, their benefits will be taxed.
It may be too late for tax year 2019, but taxpayers can avoid a tax surprise in 2020, by having federal income taxes withheld from Social Security benefits using IRS Form W-4V or from their pension using form W-4P.
Reference: Barron’s (November 2, 2019) “Retiree Taxes: Pitfalls, Overlooked Deductions, Social Security Withholding”