5 Tax Planning Strategies for Retirees in 2014

Tax strategies for seniors



If you have recently finished filing your 2013 tax return, the last thing you probably want to think about is your 2014 return. But many experts say that now is actually a good time for retirees to get a jumpstart on their 2014 taxes. Here are five areas to focus on:

1. Social Security and taxes — There is often confusion among retirees when it comes to how their Social Security benefits will be taxed — especially those who continue to receive earned income before they reach full retirement age. From a tax standpoint, there’s no difference whether Social Security payments are received before or after the full retirement age.

However, earning income can reduce Social Security benefits before full retirement age. This year, retirees can earn up to $15,480 without having any of their Social Security benefits reduced. But benefits will be reduced by one dollar for every two dollars of earned income over this amount. Once you reach the full retirement age, the earned income limit rises to $41,400, and benefits are reduced by one dollar for every three dollars of income earned over this amount.

Once you are beyond the full retirement age, there is no limit on earned income. But a portion of benefits could be taxable (at either 50 percent or 85 percent) after the full retirement age if provisional income (adjusted gross income plus one-half of Social Security benefits plus tax-exempt income) exceeds a certain amount.

2. Estimated tax payments and RMDs — If you have recently retired and will be receiving Social Security benefits for the first time in 2014, and you will be subject to any of the taxes noted above, you might need to make estimated tax payments this year to avoid paying an estimated tax underpayment next April 15.

At the other end of the spectrum, if you are age 70½ or over, you may have to begin taking minimum required distributions (RMDs) from a 401(k) plan or traditional IRA this year. These distributions will be taxed at your ordinary income tax rate.

3. Itemized deduction/personal exemption phase-outs and rising medical expense threshold — The limits on itemized deductions and personal exemptions will phase out in 2014 starting at income in excess of $305,050 for married couples filing jointly and $254,200 for singles. And in 2017, the medical expense threshold will rise from 7.5 percent to 10 percent for retirees age 65 or over. This is still a few years away, so it gives you time to plan to have elective medical procedures done before then to possibly maximize this deduction.

4. Sales tax deduction eliminated — Last year, individuals who lived in states with a state income tax were allowed to deduct either the amount of state and local income taxes they paid or the amount of state and local sales taxes they paid, whichever was higher. But this tax benefit expired in 2013 and has not been extended. This benefit could be extended retroactively later this year, but this is far from a certainty.


5. Higher tax rates and new ACA taxes — The higher tax rates that kicked in last year remain effective in 2014. These include the new top ordinary income-tax rate of 39.6 percent and the new top capital gains rate of 20 percent, both of which will apply to taxable income in excess of $457,600 for married couples filing jointly and $406,750 for singles. And don’t forget about the new taxes that are part of the Affordable Care Act and apply to individuals with income above certain thresholds: the 0.9 percent Medicare surtax on earned income and the 3.8 percent tax on net investment income.

David Lerner Associates does not provide tax advice. You should consult with a tax professional for guidance in your specific situation.

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities. Member FINRA & SIPC

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