As tax time draws near, you want to make sure you file all the proper forms and receive as many deductions as possible to minimize costs if you have to pay the IRS. You’ll want to prepare in advance and gather all the important documentation to support your annual Massachusetts State and Federal Income Tax returns.
Following are some things to keep in mind as you prepare your tax form.
- Gifts. Did you give away any money this year? The gift tax can be very confusing. If you gave away more than $15,000 in 2021, you will have to file a Form 709, the gift tax return. This does not necessarily mean you will owe taxes on the money, however.
- Medical Expenses. Many types of medical expenses are tax deductible, from hospital stays to hearing aids. To claim the deduction, your medical expenses have to be more than 7.5 percent of your adjusted gross income. This includes all out-of-pocket costs for prescriptions (including deductibles and co-pays) and Medicare Part B and Part C and Part D premiums. (Medicare Part B premiums are usually deducted out of your Social Security benefits, so be sure to check your 1099 for the amount.) You can only deduct medical expenses you paid during the year, regardless of when the services were provided, and medical expenses are not deductible if they are reimbursable by insurance.
- Parental Deduction. If you are caring for your mother or father, you may be able to claim your parent as a dependent on your income taxes. This would allow you to claim the $500 tax credit for any non-child dependents.
- Long-Term Care Insurance Premiums. Premiums for “qualified” long-term care policies are treated as an unreimbursed medical expense. Long-term care insurance premiums are deductible for the taxpayer, his or her spouse and other dependents.
- Social Security Benefits. Although Social Security benefits are generally not taxable, people with substantial income in addition to their Social Security may pay taxes on their benefits. If you file a federal tax return as an individual and your “combined income,” including one half of your Social Security benefits and nontaxable interest income is between $25,000 and $34,000, 50 percent of your Social Security benefits will be considered taxable. If your combined income is above $34,000, 85 percent of your Social Security benefits is subject to income tax.
- Home Sale Exclusion. Married couples can exclude from income up to $500,000 in profit on the sale of a home ($250,000 for single individuals). If a surviving spouse sells the home, he or she can still claim the exclusion as long as the house was sold no more than two years after the spouse’s death.
- Elderly or Disabled Tax Credit. Some low-income elderly or disabled individuals are entitled to a special tax credit. To be eligible, you must meet income limits. For more information, click here.
- Earned Income Tax Credit. Previously primarily available to people with young children, for 2021 working seniors without dependents may qualify for this important credit. For more, click here.
- Tax Refunds. Getting a federal tax refund should not affect your Medicaid or Social Security benefits. For a year after recieving a tax refund from the federal government, the refund will not be considered income or resources for SSI or Medicaid purposes. You can also transfer the refund within a year without incurring a penalty.
The IRS’s Tax Counseling for the Elderly (TCE) Program offers free tax help to taxpayers who are 60 and older. For more information, click here. The IRS also publishes a Tax Guide For Seniors.
More than anything, it’s important to rely on licensed, tax experts. Depending on the extent of your taxes, whether it’s personal or business, legal consultation may be necessary and actually save you time and money overall. We can refer you to various professionals depending on your needs. The Law Office of John G. Kennan operates out of East Sandwich and Yarmouth, Massachusetts. We are ready to help you and suggest you begin as early as possible. Contact us here.