Spring has finally arrived. The birds are chirping, flowers are blooming, temperatures are rising—and, unfortunately, April 15 is fast approaching.
Filing income tax returns is rarely a pleasurable experience, and as you enter into retirement, you may find yourself facing a new financial landscape. But with the right tools and information, you can avoid common pitfalls, and make the most of your hard-earned assets.
Mark Luscomb is the principal analyst for the tax and accounting group at CCH, a nationwide firm that offers tax and accounting services and research. Luscomb says the tax code changes every year, and there may be new rules that could help you save money.
· Go high-tech: There are many easy-to-use tax preparation software programs that can help you take advantage of changes to the tax code. “Tax software asks questions that are relevant to new developments and can direct you to the new information that can help you get some tax breaks,” Luscomb says.
· Make your gifts count: You can give up to $24,000 a year (for a married couple filing jointly) without triggering a gift tax. So the money that you give to your children for a new home or to your grandchildren for college also provides a benefit for you at tax time. What’s more, the $24,000 annual gift does not count against the $1 million lifetime tax gift tax exemption.
· Give it away: Midway through your 70th year, you are required to begin taking distributions from IRAs, which will increase your adjusted gross income, possibly making you ineligible for certain deductions. To sidestep this penalty, you can donate up to $100,000 annually to charity directly from your IRA.
· Sell your house: When you make a profit from the sale of a home, you owe taxes on the capital gain. But as long as that house was your primary residence for two of the last five years, $500,000 is safeguarded from taxation (for married couples filing jointly).