Double check that you are taking advantage of every deduction and credit available to you
With the 2012 tax filing season underway, Americans are scrambling to find every deduction or credit available to them. Here are 10 time-tested but little-known steps that older taxpayers may be able to use to slash the bottom line of their returns.
Some of these steps are complex and require that you itemize your return, rather than take the standard deduction. And some types of deductions are claimable only in the amount that exceeds 7.5 percent of your adjusted gross income. Other restrictions may apply as well.
So consult with a tax adviser, use the free tax advisor provided for Parkwood Heights Residents or with tax preparation software about whether they can be put to work for you. Be sure you understand how they work. And always save the documentation of the expenses in case the IRS ever wants to see it.
Get the most out of your income tax return.
Claim a portion of long-term care insurance premiums — the older you are, the higher the claimable ceiling. Here’s the scale for the current filing year: Age 40 or under — the maximum claimable amount is $340; 41 to 50 — $640; 51 to 60 — $1,270; 61 to 70 — $3,390; 71 or over — $4,240.
Deduct the room and board costs of an assisted living facility if the resident is there mainly for medical purposes and is getting staff assistance to perform normal activities of daily living, such as bathing and dressing, or has cognitive impairment to the point of requiring supervision. The services are deductable too. They must be part of a plan of care prescribed by a licensed health care provider for a chronically ill person.
Deduct legal fees for retirement tax planning and medical expenses for things such as hearing aids and batteries, artificial teeth and prescription drugs, says Mark Steber, chief tax officer for Jackson Hewitt. Other claimable medical expenses: fertility treatments, oxygen, vasectomies and wheelchairs.
More Tax Tips
Be aware, though, that some expenses you might think are claimable in fact are not. They include hair transplants, maternity clothes and teeth whitening. Also not claimable: costs for any kind of illegal operation or treatment.
Do you work while paying a home health aide to take care of your spouse or dependent? You may be able to claim a credit of up to $3,000 in dependant (or spouse) care expenses. That credit is shaved directly off your bottom-line tax bill; it is not a deduction from your taxable income.
If you contributed after-tax income to your retirement account, a percentage of your annual distribution may be tax-free. The logic for this is that if you already paid taxes on money before you put it into the account, it shouldn’t be taxed again when it comes out. But tax rules are never simple: You will have to pay taxes on any earnings that those after-tax contributions generated while in the account.
by: Carole Fleck | from: AARP Bulletin | February 8, 2012