Increased standard deduction
If you are over the age of 65, or have gone blind before the end of the year, then you are entitled to a higher standard deduction. But remember, if you take the standard deduction you will not be able to itemize your return.
Social security taxes
Whether you owe taxes on your social security benefits depends entirely on your income level, and income types. If social security benefits have been your only form of income and will continue to be, you will most likely not need to pay taxes or file a Federal income tax return. However, before deciding to pay income taxes or not, it is probably a good idea to get a second opinion from a tax professional.
Required minimum distribution (RMD)
Retirees who are 70 1/2 or older in 2009 get the added bonus of the new tax law which has relaxed the mandatory minimum withdrawal from IRA’s. Until now, retired individuals had no choice but to take a yearly mandatory withdrawal from their IRA, even if they did not need it. However there is a new one-time-only law that takes away this requirement for the 2009 tax year, which is expected to protect retirees from being forced to lock-in large investment losses from the past year.
Roth IRA benefits
Unlike taxable payouts from traditional IRAs, a Roth IRA is tax-free, making it especially useful if you have no other source of income. You can even switch a traditional IRA to a Roth IRA in what is known as a Roth conversion. You will have to pay taxes the year you convert, but it could be beneficial to you in the long run. If you are seriously considering a Roth conversion, then I highly recommend you speak with a qualified tax or accounting professional. They can help you weigh the pros and cons of the conversion.
Do not forget your winnings
Some retired taxpayers get in to trouble with the IRS for having too much fun at the casino without telling Uncle Sam. Do not forget that gambling winnings are forms of taxable income. You will need to pay taxes on the winnings even if your next bet is a big loser.
If you itemize your deductions, then the IRS will allow you to deduct dozens of medical expenses. But remember, the IRS only allows you to claim the medical expenses that exceed 7.5% of your adjusted gross income. Thus, make sure to keep track of all your expenses throughout the year to qualify for the largest deduction possible.
Millions of people have taken losses in the stock market lately, and many retired senior citizens are having the same problem. If you claim your stock losses now, they can later be used to offset your gains. In addition to this, you can deduct up to $3,000 in capital losses a year against ordinary income. Any loss remaining can also be carried forward into future years to be used until it is depleted.
Seek professional advice
With constantly changing tax codes, it can be difficult for even the most up to date professional to stay on top of every change in tax law. To be absolutely sure you are taking advantage of every deduction and credit you can, you might want to consider hiring a tax professional to help you prepare your taxes. For those of you who cannot afford to hire professional help, Tax Counseling for the Elderly provides free tax advice to seniors 60 years of age and older.