No One is Exempt: Tax Planning
Taxes are a significant expense.
No one is exempt from paying taxes (including retirees).
"Tax laws about retirement are confusing and constantly changing, but the one certainty is this: Your retirement money will get taxed. This includes Social Security! Far too many people think that because Social Security is a tax, it means the money is already taxed. It's not. People will have to pay taxes on up to 85% of their Social Security benefits. Not understanding that may lead you to believe you have more money saved than you really do." (Quoted from: I’ve Been a Retirement Planner for 17 Years—Here Are the 18 Biggest Mistakes Most People Make (msn.com) )
Common Retiree Taxes
Property Tax
- Ask your local Property Tax office if there is a Senior Citizen discount. In Anchorage, Alaska the discount is 20%. In Soldotna, Alaska, local property tax is waived. Personal property taxes can be deducted from your federal income tax return up to $10,000 per year. (See below: "The Balance". Deductible Personal Property Taxes.)
Fuel / Gasoline Tax (tax as high as $0.49 per gallon)
Sales Tax
- Sales tax range from 0% to highest combined sales tax in the United States is 13.725%. In the highest combined sales tax locales, residents pay combined sales tax to the municipality, county, and state.
Vehicle Registration Fees
- Ask your local Vehicle Registration Office if they have a Senior Citizen discount. In Anchorage, Alaska, semi-annual vehicle registration fee for one vehicle per Senior Citizen is waived.
State Income Tax
- State income tax ranges - from 0% to as high as 12.3%. Certain state taxes are also eligible for a federal tax deduction.
Federal Income Tax
Determine what portion of your retirement income is taxable.
Federal Income Tax Brackets
"There are seven tax brackets for most ordinary income for the 2022 tax year: 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent and 37 percent." Your tax bracket depends on your taxable income and your filing status: single, married filing jointly or qualifying widow(er), married filing separately and head of household. Generally, as you move up the pay scale, you also move up the tax scale." " There are two main ways to get into a lower tax bracket: tax credits and tax deductions." (Quoted from: Bankrate.)
Tax Credits: How to Qualify
Tax credits, as opposed to tax deductions, are subtracted directly from the tax you owe, helping you cut down your overall tax bill. Tax deductions simply lower your taxable income. (See below: "What Tax Credits can I Qualify For This Year" - Bankrate)
Tax Deductions: How to Qualify
"While tax credits reduce your actual tax bill, tax deductions reduce the amount of your income that is taxable. If you have enough deductions to exceed the standard deduction for your filing status, you can itemize those expenses to lower your taxable income." (Quoted from Bankrate)
Standard and Itemized Deductions: How to Qualify
"The difference between a standard deduction vs. itemized is that a standard deduction is a flat dollar amount determined by the IRS that requires less paperwork and record keeping. And for many taxpayers, the standard deduction is higher than your itemized deduction would be — which means you’ll save more on your taxes." "Some older and visually impaired taxpayers may be able to cut their tax bills with even larger standard deduction amounts by simply checking a couple of boxes on their tax returns."
"An itemized deduction is a qualifying expense you can claim on your tax return to reduce your adjusted gross income. By lowering your adjusted gross income, you could lower how much you pay in taxes." "When you file your federal income tax return, you have your choice of claiming deductions: standard deduction or itemized deduction. In some cases, a standard deduction is the best option if you do not have many qualifying itemized deductions such as state and local taxes, mortgage interest, charitable or health care expenses. As a result of the 2017 Tax Cuts and Jobs Act, most taxpayers now take the standard deduction."
(Quoted from Bankrate)
Capital Gains Tax
Capital gains tax is the levy on the profit when an asset is sold. Capital gains is based on the "gain" from the original purchase price to the price at sale. It is owed for the tax year during which the investment is sold. Capital gains include: property (including your home), financial investments. The amount of "Capital gain" depends on your personal tax bracket.
Required Minimum Distribution (RMD)
"Required minimum distributions (RMDs) are minimum amounts that U.S. tax law requires individuals to withdraw annually from traditional IRAs and employer-sponsored retirement plans. Individuals with IRAs are required to begin withdrawing a minimum amount from their IRAs no later than April 1 of the year following the year in which they reach age 72.[a] IRA owners do not have to take lifetime distributions from Roth IRAs, but after-death distributions (below) are required. (The RMD is added to your annual Federal tax return as taxable income). The monetary penalty is an excise tax equal to 50% of the amount they should have withdrawn, plus interest. The purpose of the RMD rules is to ensure that people do not accumulate retirement accounts, defer taxation, and leave these retirement funds as an inheritance." (Quoted from Wikipedia - "Required Minimum Distribution")
IRS provides RMD Tables to calculate your required distribution. Request that your brokerage account provides your RMD distribution. (Refer to the article: Required Minimum Distribution (RMD) Calculator (aarp.org)
2023 Tax Brackets
Income tax brackets are "progressive".
Call to Action: WHERE CAN I TURN FOR ASSISTANCE
Visit a Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE) program, which offer free tax counseling and return preparation to people who are 60 or older or have low to moderate income. (Get Free Tax Prep Help (treasury.gov)
Contact the AARP Foundation Tax-Aide program, which provides free tax guidance and preparation to seniors age 50 and older, with special attention to low- and moderate-income taxpayers. (AARP Foundation Tax-Aide Program. Free Tax Preparation from AARP Foundation Tax-Aide )
Check the IRS website for tax information for elders, such as tax credits, deductions, and filing requirements. (Tax Information for Seniors & Retirees. Seniors & Retirees | Internal Revenue Service (irs.gov)
Consult your local Area Agency on Aging for other resources and referrals.
Consult a tax advisor.
TAX PREPARATION SOFTWARE (partial list)
- H&R Block Free Online. Designed for people with less complex filing.
- Untuit Turbo Tax. Offers a free option if you qualify.
- Tax Act Free. Basic return filers (retiree income, unemployment income, college students) file for free.
- Cash App Taxes. Free Federal and State Filing.
RESOURCES THAT MIGHT BE HELPFUL..
Free Tax Counseling
Get Free Tax Prep Help (treasury.gov)
Tax Counseling for the Elderly. Tax Counseling for the Elderly | Benefits.gov
Tax Information for Seniors & Retirees. Seniors & Retirees | Internal Revenue Service (irs.gov)
Is Retirement Income Taxable
Retirement Taxes: These 6 Sources of Retirement Income Are Not Taxable (msn.com) John Csiszar. MSN. Retirement Taxes: These 6 Sources of Retirement Income Are Not Taxable (msn.com)
Is My Retirement Income Taxable? SmartAsset. Is My Retirement Income Taxable? (msn.com)
Retirement Taxes: These 6 Sources of Retirement Income Are Not Taxable. GoBankingRates. John Csiszar. Retirement Taxes: These 6 Sources of Retirement Income Are Not Taxable (msn.com)
Federal Income Tax
Federal Income Tax Calculator (2022-23) Federal Income Tax Calculator (2022-2023) (smartasset.com)
2023 Tax Brackets. Tax Foundation. Alex Durante. 2023 Tax Brackets and Federal Income Tax Rates | Tax Foundation
What tax credits can I qualify for this year? AJ Dellinger. Bankrate. What Tax Credits Can I Qualify For This Year? | Bankrate
2022-2023 tax brackets and federal income tax rates. 2022-2023 Tax Brackets and Federal Income Tax Rates | Bankrate
12 ways to lower your taxable income this year. Cynthia Widmayer. Bankrate. 12 Ways To Lower Your Taxable Income This Year | Bankrate
Standard deduction vs. itemized deduction: Pros and cons, and how to decide. Lauren Ward. Bankrate. Standard Deduction vs. Itemized Deduction: How To Decide | Bankrate
Itemized deductions: What they are and how they work. Itemized Deductions: What They Are and How They Work | Bankrate
Capital Gains Tax: What It Is, How It Works, and Current Rates (investopedia.com). Investopedia.
Medical and Dental Expenses Tax Credit. Medical and Dental Expenses Tax Credit | Benefits.gov
Required Minimum Distribution (RMD)
Required Minimum Distribution Calculator (RMD). Avoid stiff penalties for taking out too little from tax-deferred retirement plans. AARP, Updated June, 2023. Required Minimum Distribution (RMD) Calculator (aarp.org)
IRA required minimum distributions table 2023. Bob Haegele. MSN.com. IRA required minimum distributions table 2023 (msn.com)
Property Taxes
Deductible Personal Property Taxes. Certain state taxes are also eligible for a federal tax deduction. William Perez. The Balance. Deductible Personal Property Taxes (thebalancemoney.com)
Tax Strategies
Tax Preparation Software
The Best Tax Software for 2023. Kathy Yakal. PC Magazine. The Best Tax Software for 2023 | PCMag
SO...What'd we miss??
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