Most Action in the Time Line for Older Adult Planning Involve Significant Tax Ramifications Medical Expenses. Many types of medical expenses are tax deductible, from hospital stays to hearing aids. To claim the deduction, your medical expenses have to be more than 7.5 percent of your adjusted gross income. This includes all out-of-pocket costs for prescriptions (including deductibles and co-pays) and Medicare Part B and Part C and Part D premiums. (Medicare Part B premiums are usually deducted out of your Social Security benefits, so be sure to check your 1099 for the amount.) You can only deduct medical expenses you paid during the year, regardless of when the services were provided, and medical expenses are not deductible if they are reimbursable by insurance. Parental Deduction. If you are caring for your mother or father, you may be able to claim your parent as a dependent on your income taxes. This would allow you to get a $3,650 exemption in 2009) for him or her. Long-Term Care Insurance Premiums. Premiums for "qualified" long-term care policies are treated as an unreimbursed medical expense. Long-term care insurance premiums are deductible for the taxpayer, his or her spouse and other dependents. |
Social Security Benefits. Although Social Security benefits are generally not taxable, people with substantial income in addition to their Social Security may pay taxes on their benefits. If you file a federal tax return as an individual and your "combined income," including one half of your Social Security benefits and nontaxable interest income is between $25,000 and $34,000, 50 percent of your Social Security benefits will be considered taxable. If your combined income is above $34,000, 85 percent of your Social Security benefits is subject to income tax. Real Estate Taxes. If you do not have enough deductions to itemize, you can still increase the amount of your standard deduction by the amount of your real estate taxes, up to $500 ($1,000 if filing jointly). Home Sale Exclusion. Married couples can exclude from income up to $500,000 in profit on the sale of a home ($250,000 for single individuals). If a surviving spouse sells the home, he or she can still claim the exclusion as long as the house was sold after 2007 and no more than two years after the spouse's death. Elderly or Disabled Tax Credit. Some low-income elderly or disabled individuals are entitled to a special tax credit. To be eligible, you must meet income limits. Content and Citation to IRS Tax Guide For Seniors [dated 2008] |