3 Tax Breaks Retirees Often Miss

Retirement changes your tax return. Some of the things people did for years no longer apply, and a few new ones do. Here are three that are easy to overlook.

Key takeaways

• Medical costs can sometimes be deducted, including Medicare premiums
• A gift from an IRA to charity may not count as income
• Grouping gifts into one year may help you pass the standard deduction

1. Medical expenses

You can only deduct medical costs if you itemize, and only the part that goes over a set percentage of your income. For many people it is not enough to matter. But in a year with a big bill, it may be.

Costs that may count include:

• Medicare premiums
• Long-term care insurance premiums, within IRS limits
• Hearing aids, dental work and eyeglasses
• Mileage to and from medical appointments

Keep your receipts. Ask your tax preparer whether this applies to you.

2. Qualified charitable distributions

This one is technically not a deduction. It is a way to keep money out of your income in the first place.

If you are 70½ or older, you can send money straight from an IRA to a charity. This is called a qualified charitable distribution, or QCD. The gift is not added to your taxable income. If you are taking required withdrawals, it can also count toward them.

Lower income can matter beyond your tax bill. It may affect how much of your Social Security is taxed, and it may affect your Medicare premiums.

Money has to go directly from the IRA to the charity. If it passes through your hands first, it may not qualify.

3. Bunching gifts into one year

Most retirees take the standard deduction. Giving to your church or favorite cause may not change your tax bill, because your gifts alone do not go above it.

Some people give two or three years of gifts in one year. That year they itemize. In the other years they take the standard deduction. A donor-advised fund is one tool people use for this. It is not right for everyone, so it is a question for your advisor and your tax preparer.

• Gather your medical receipts and Medicare premium statements
• List what you gave to charity this year
• Ask whether a QCD fits your plans
• Ask your tax preparer whether itemizing makes sense this year

Sources and references

• IRS: Topic 502, Medical and dental expenses (opens in a new tab)
• IRS: Required minimum distributions, including QCDs (opens in a new tab)
• IRS: Charitable contribution deductions (opens in a new tab)

This article is general information, not tax or investment advice for your situation. Tax rules change; talk with a qualified professional before acting.