Tax Deductions Every Retiree Should Know About

Taking advantage of retiree tax deductions is a savvy way to protect your nest egg and enjoy greater retirement security.

When you’ve spent a lifetime saving for your golden years, retirement can feel like a finish line of sorts. You might be tempted to stop concerning yourself so much with your finances and choose to simply enjoy your hard-earned savings instead. Of course, this would be a mistake! Careful financial management is a cornerstone to a secure retirement, even after you’ve left the workforce. While you should certainly enjoy the fruits of your labor, it’s also important to be mindful of your financial responsibilities, including taxes. Below, we discuss retiree tax deductions because retirees have access to several tax deductions, as well as credits, that can help lower their tax liability and maximize their retirement income. Read on to learn more!

1. Standard Deduction

Any list of retiree tax deductions – or any deductions, really – should start with this one because it’s significant. The standard deduction is a fixed amount that reduces your taxable income. For retirees who don’t itemize deductions, the standard deduction can be a valuable tax benefit. The Tax Cuts and Jobs Act increased the standard deduction significantly, providing a tax break for many retirees. For 2023, it stands at $13,850 for single filers, $27,700 for joint filers, or $20,800 for head of household.

2. Senior Tax Credit

If you’re 65 or older and your income falls below certain thresholds, or you’re retired on permanent and total disability, you may be eligible for another of the most significant retiree tax deductions called the Senior Tax Credit. This credit can provide additional tax savings, helping you retain more of your retirement income. The IRS provides more guidelines on who qualifies here.

3. Social Security Income

A portion of your Social Security income may be subject to federal income tax. The amount that’s taxable depends on your combined income, which includes half of your Social Security benefits, plus other sources of income from pensions, tax-advantaged accounts, investment earnings, and more. While this isn’t a credit, understanding this particular tax rule can help you plan for potential tax liability.

4. Retirement Account Contributions

Retirees can continue to make contributions to retirement accounts like Traditional IRAs and 401(k)s, up to certain limits. These contributions may be tax-deductible, reducing your taxable income and providing long-term retirement savings benefits.

5. Medical Expense Deductions

If your medical expenses exceed a certain percentage of your adjusted gross income, you may be able to include them in your retiree tax deductions, too. This can be particularly valuable for retirees with high healthcare costs. Even if you aren’t facing high health costs now, keep this deduction in mind because recent data suggests that couples retiring today will spend upwards of $315,000 on healthcare in retirement.

6. Charitable Contributions

Charitable contributions can be tax-deductible, and many retirees are inclined to support their favorite causes for intrinsic reasons anyway. By keeping track of your charitable donations and itemizing deductions, you can potentially reduce your tax liability while doing good at the same time.

7. State and Local Tax Deductions

Retirees who itemize deductions can typically deduct state and local taxes paid. However, recent tax law changes have placed limits on these deductions, so it’s important to understand how they affect your specific situation. Work with a financial professional to understand whether these retiree tax deductions apply to you.

8. Property Tax Deductions

If you own a home, property tax deductions can help lower your tax bill. Some states also offer property tax relief programs specifically designed for seniors. For example, Virginia offers specific property tax relief in most cities and counties if you are 65 or older, or if you have a disability (regardless of age).

9. Mortgage Interest Deduction

If you still have a mortgage on your home, you may be able to deduct the interest you pay. This can be a significant deduction for retirees with outstanding mortgage balances.

10. Sales Tax Deduction

In states without an income tax, retirees can potentially deduct the sales tax they pay on purchases, including large expenses like a new car or boat. Consider whether you made any qualifying purchases this tax year.

11. Long-Term Care Insurance Premiums

Premiums for qualified long-term care insurance policies tend to be pricey, but the upside is that they may be tax-deductible. This is another of the retiree tax deductions that can provide financial relief for retirees who have invested in this type of coverage.

Are You Making the Most of Retiree Tax Deductions?

No one wants to pay more in taxes than necessary. Understanding these retiree tax deductions and credits is essential for retirees who want to maximize their financial resources during retirement. It’s advisable to work with a financial advisor or tax professional who can help you navigate the complexities of the tax code and ensure you’re taking full advantage of available tax benefits.

Retirement should be a time of financial comfort and security, and these tax deductions can play a crucial role in achieving that goal. By staying informed and planning strategically, you can make the most of your retirement years while keeping more of your hard-earned money. If you’d like a professional partner by your side to help you make strategic financial planning decisions, reach out to the Cash Financial team today.

Schedule your 15-minute introduction call with Cash Financial and begin planning the retirement you deserve.

Join Our Mailing List

By joining our mailing list, you’ll receive regular emails packed with valuable information to help you make informed financial decisions, achieve your goals, and secure your future.

Skip to content