Deductions retirees frequently miss

Most retirees take the standard deduction, which is straightforward. Several provisions are still worth knowing about, and a few change the calculation entirely in particular years.

The additional standard deduction

Taxpayers above a specified age receive an additional amount on top of the standard deduction, with a further addition for blindness.

For a married couple where both qualify, the combined addition is meaningful.

This is applied automatically by any competent preparation, and it is worth knowing about because it raises the threshold at which itemising becomes worthwhile.

Medical expenses

The provision most likely to matter in a specific year.

Unreimbursed medical expenses exceeding a percentage of adjusted gross income are deductible for those who itemise.

The threshold is high enough that most people never reach it — except in a year with a major event.

What counts is broader than people assume: insurance premiums including Medicare Part B, Part D and supplement premiums, long-term care insurance premiums up to age-based limits, long-term care services, dental, vision, hearing aids, prescribed equipment, home modifications for medical necessity, and travel for medical care.

A year involving substantial long-term care costs or a major medical event frequently crosses the threshold by a wide margin, and in such a year itemising can produce a large deduction.

There is a planning implication: where large medical expenses are anticipated, concentrating them into a single tax year rather than spreading them across two can produce a better result.

Charitable giving

Covered elsewhere on this site.

The key points: qualified charitable distributions from an IRA exclude income rather than deducting it, which works regardless of whether you itemise; donating appreciated securities avoids the gain; and bunching several years of giving into one year can allow itemising in that year.

State-specific provisions

Frequently more valuable than federal ones for retirees.

Many states exempt some or all retirement income, with rules varying by income type.

Property tax relief programmes for older residents exist in most states and take various forms — exemptions, assessment freezes, deferrals and credits.

These are generally not automatic. They require an application, and many eligible people never make one.

Checking what your state and county offer is worth an hour and can produce a recurring annual saving.

The credit for the elderly or disabled

A federal credit exists for taxpayers above a specified age or with a qualifying disability.

Income limits are low enough that relatively few people qualify, and for those who do it is worth claiming.

Other items worth checking

Self-employed health insurance, deductible for those with self-employment income, including Medicare premiums in some circumstances.

Investment interest expense, where relevant.

Casualty losses, which are now limited to federally declared disaster areas but remain available in those circumstances.

Carried-forward capital losses, which persist indefinitely and are frequently forgotten after a change of preparer or software.

Basis in traditional IRAs from non-deductible contributions, which reduces the taxable portion of withdrawals and requires the relevant form to have been filed.

Failing to track this results in paying tax twice on the same money, and it is a common error.

The general approach

Run the numbers both ways each year — standard deduction and itemised — rather than assuming.

Most years the standard deduction wins. The years it does not are generally the years with a large medical event or a concentrated charitable gift, and those are exactly the years where the difference is substantial.

Which is an argument for keeping records of deductible expenses even in years when you expect not to itemise.

Long-term care in a deduction year

The situation where this matters most.

A year involving substantial paid long-term care costs frequently produces medical expenses far above the deduction threshold.

Where care is being funded from tax-deferred accounts, the withdrawals generate income and the care costs generate a deduction, which can substantially offset each other.

This interaction is worth modelling rather than discovering afterwards, because it can change the optimal source of funds for the care.

Qualifying long-term care services must generally be for a chronically ill individual under a plan of care prescribed by a licensed practitioner, which is a specific requirement rather than a general one.

General information only, not tax advice. Thresholds and provisions change annually and vary by state — consult a qualified tax professional about your own situation.