Once you are retired, paying taxes can become a major burden. All you want to pay is the minimum required. Both new and old retirees can make some good tax savings by being aware of IRS federal and state tax laws. So, let’s see how you can make your tax bills as low as possible.
Take Your RMDs
If you have an employer-sponsored retirement plan and you have hit the age of 70 years and 6 months, start making annual withdrawals from your account. These are known as required minimum distributions (RMDs). Based on key factors such as your age, the agency provides you with a table detailing your RMDs. Calculate the amount you have to withdraw each year. Withdrawal rules are different for inherited retirement accounts, but you have to take RMDs from these accounts as well. If you are not taking the RMD, expect a tax penalty equal to half of the RMDs.
Pay Taxes As You Take Distributions
Knowing that distributions are subjected to tax, people avoid taking RMDs. Most pension benefits are subjected to tax. Involve a tax advisor in Pasadena when you are paying tax on retirement income as things often get complicated. You have to pay tax as you get money.
When you were in the workforce, your employer had taken care of your tax obligations. However, you are not working now. You have to make sure that you are paying your taxes on time. You do not have to worry if you are taking a pension check from your employer. Tax will be sent to the agency from that check. However, if the employer is not withholding tax, you have to pay quarterly estimated taxes. So, be aware of tax being withheld, if any. Give your tax on time. This will help in avoiding any penalty.
Know Taxes On Social Security Benefits
Seniors get a lot of income from Social Security. Keep in mind that these benefits are also taxed. So, learn all the rules related to taxes on Social Security benefits. There is a certain threshold in place. If Social Security benefits exceed this threshold, you have to pay taxes. Taxable income, municipal bond interest, and some other nontaxable income and half the Social Security benefits define income for these purposes.
For example, you are a single person making above $25000 or you are married with income above $32,000 and filing jointly, you have to pay tax on up to 50% of your Social Security benefits. If you are single making at least $34,000, the taxable amount can be up to 85% of the benefits. The same goes for a married person making $44,000. Learn about these rules and get help from a tax advisor in Pasadena.
Track Your Medical Expenses To Claim Deductions
Not all of the big medical expenses are covered by Medicare. So, keep track of all the unreimbursed medical expenses you are incurring. You are eligible for a tax deduction if your medical expenses are exceeding a certain percentage of your adjusted gross income (10% for the tax year 2019). A tax advisor in Pasadena can tell you about all the deductions you can get.