Overlooked Tax Deductions for Retirement

Tax deductions for retirement are one of our most asked topics here in our offices. And today, we’re pulling back the curtain on the most overlooked deductions and how to fix them.

Raise your hand if you want to pay the IRS more taxes than you have to. Although I can’t see whether or not you raised your hand, I’m going to guess that you’re not enthusiastically raising your hand to this. 

But did you know that while few may raise their hands, Americans regularly overpay because they fail to take tax deductions for which they are eligible. That’s crazy, right? 

So, in today’s article, I wanted to go over the five most overlooked tax deductions for retirement.

Let’s take a quick look at the five most overlooked opportunities to manage your tax bill.

Reinvested Dividends

When your mutual fund pays you a dividend or capital gains distribution, that income is a taxable event (unless the fund is held in a tax-deferred account, like an IRA).

If you’re like most fund owners, you reinvest these payments in additional shares of the fund. The tax trap lurks when you sell your mutual fund. If you fail to add the reinvested amounts back into the investment’s cost basis, it can result in double taxation of those dividends.

Mutual funds are sold only by prospectus. Please consider the charges, risks, expenses and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.

Out-of-Pocket Charity

It’s not just cash donations that are deductible.

If you donate goods or use your personal car for charitable work, these are potential tax deductions. Just be sure to get a receipt for any amount over $250.

Charitable donations come in many shapes and sizes, and we’ve dedicated a whole article to talking about potential tax deductions on donations.

State Taxes

Did you owe state taxes when you filed your previous year’s tax returns? If you did, don’t forget to include this payment as a tax deduction on your current year’s tax return. The Tax Cuts and Jobs Act of 2017 placed a $10,000 cap on the state and local tax deduction.

Medicare Premiums

If you are self-employed (and not covered by an employer plan or your spouse’s plan), you may be eligible to deduct premiums paid for Medicare Parts B and D, Medigap insurance and Medicare Advantage Plan.

This deduction is available regardless of whether you itemize deductions or not.

Income in Respect of a Decedent

If you’ve inherited an IRA or pension, you may be able to deduct any estate tax paid by the IRA owner from the taxes due on the withdrawals you take from the inherited account.

Under the SECURE Act, in most circumstances, once you reach age 72, you must begin taking required minimum distributions from a Traditional Individual Retirement Account (IRA). Withdrawals from Traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.

You may continue to contribute to a Traditional IRA past age 70½ under the SECURE Act as long as you meet the earned-income requirement.

Related: The Most Asked Questions about Taxes in Retirement

Help with Tax Deductions for Retirement

As you consider all of this, please remember that tax laws are subject to change without notice, and this article is not intended as tax or investment advice.

Give our office a call before making any charitable gifting, tax, or investment decision.

This information is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement.

There are so many personal factors when it comes to taxes and your retirement. My goal is to provide all the education I can to help you make the right decision for your personal circumstances. 

If you feel you need to prepare more for the future or reexamine your existing strategy, I’d love to set up some time to chat.

We’re happy to work with you either in person, over the phone, or virtually, based on your preference. Give our office a call and we can schedule some time together.