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Tips for tax season

Created date

February 23rd, 2015

April 15 will be here before we know it. When you’re retired, your tax strategy will probably be different from when you were working. Michael Atias, tax director of the Online Trading Academy (tradingacademy
), says tax planning is crucial for retirees, but there is some good news.

“If you plan right, you can pay a very low tax rate on income when retired,” Atias says.

Know the basics

The tax you owe is based on the amount of taxable income you received during the year. In retirement, taxable income is generated from investment returns, distributions from IRAs and 401(k)s, as well as from social security, which is a reason you may want to defer your start date.

“Many seniors are surprised to find out that up to 85% of their social security is taxable,” Atias says. “Consult with your accountant on the costs of taking social security at the early age of 62.”

When you were working, taxes were withheld by your employer. However, in retirement, you may be responsible for determining the tax you owe based on your sources of income. 

“Taxpayers need to effectively plan for estimated taxes due on investment income, distributions from IRAs or pensions or other types of unearned income,” says Pennsylvania CPA David Martines ( “Failure to do so can result in large estimated tax penalties.”

Don’t forget medical expenses 

For older taxpayers, medical expenses are typically one of the largest deductions. Connie Moore, who owns a Liberty Tax ( franchise in Maryland, says one of the biggest mistakes she sees clients make is failing to deduct all of their medical expenses. In addition to Medicare and supplemental insurance premiums, you may also be able to take deductions for things like long-term care expenses, hearing aids, walkers, wheelchairs, and possibly even renovations to make your home accessible. If you live at a retirement community where medical care is included, you may be able to deduct a portion of your monthly fees.

“One of the things that’s really overlooked for people in retirement communities is that part of their monthly fees end up being for medical expenses, and that may be deductible,” Moore says.

Watch out for scams

Tax time is high season for scammers, who know that people are thinking about their finances and the money they may owe. Moore says many scam artists target people in older generations, who are known to be honest, hardworking, and inclined to pay their bills. 

In a common scam, fraudsters will call you and pose as an IRS agent. They may say they need you to verify your social security number or may claim that you owe back taxes and need to provide your bank account information. Moore says calls like that are huge red flags and that you should not, under any circumstances, provide personal information over the phone or via email.

“The IRS does not call people,” Moore says. “If they call you, you tell them to send you a letter—most scammers will hang up at that point.”