The federal government taxes many types of income in addition to wages and salaries earned from active work, such as interest, dividends and retirement plan withdrawals. As a result, you may still have to pay income tax and file tax returns during retirement. The Internal Revenue Service doesn't offer tax deductions that only apply to retirees, but elderly taxpayers are granted a higher standard deduction than other filers. Retirees may also stand to benefit more from certain itemized deductions than other taxpayers.
The standard deduction is a fixed tax deduction that you can claim to reduce your taxable income instead of claiming your itemized deductions. Itemized deductions include home mortgage interest, property taxes, medical expenses and a variety of other common expenses. Single taxpayers aged 65 and older are granted a standard deduction of $7,400 and joint filers age 65 and older earn a standard deduction of $14,200. By contrast, single filers younger than 65 receive a standard deduction of $5,950 and joint filers see a standard deduction of $11,900.
Medical Expense Deduction
Retirees typically have higher medical expenses than younger taxpayers, which can make the deduction for medical and dental expenses especially valuable for older taxpayers. According to the Internal Revenue Services, medical and dental expenses in excess of 7.5 percent of your adjusted gross income are tax deductible as an itemized deduction for the 2012 tax year. The deduction includes insurance premiums, doctor’s fees and payments for nursing home service. The income limit is set to increase to 10 percent for the 2013 tax year.
Sales Tax Deduction
The IRS allows you to deduct state and local income taxes on your tax return, but you may face lower state and local income taxes during retirement. You can choose to take an itemized deduction for state and local sales taxes paid throughout the year instead of income taxes. You can calculate your sales tax deduction by saving your receipts throughout the year and adding up the total amount of tax paid.
Donations of cash and property to churches and charitable nonprofit organizations count as itemized deductions. Gifts of property are deductible up to their fair market value, which is the amount property would sell for on the open market. The deduction for charitable contributions is limited to 50 percent of your adjusted gross income, but gifts in excess of the limit can be carried forward and deducted on up to five future tax returns.
Gregory Hamel has been a writer since September 2008 and has also authored three novels. He has a Bachelor of Arts in economics from St. Olaf College. Hamel maintains a blog focused on massive open online courses and computer programming.