Retiree Tips

Well, once again, it's tax season. Between finding all of your receipts and keeping up with changes in the tax laws, this can be a frustrating time of year. And of course, you're always looking for any way to save on the taxes you have to pay. The good news is that there is a lot of information out there about your tax options as a retiree. The trouble is that it can take a lot of time and effort to find that information...time and effort that many of us don't have.

One great resource for getting both tax help and answers to your questions is the AARP's Tax Aide Program, provided by the AARP Foundation. You can find this program online at www.aarp.org/taxaide.

In addition, for this article, we've put together several tax tips that will help you get those taxes done (and save you some money!) before time runs out.

Taxpayers who start early and are organized reap the most rewards--by paying less. Why? Because the earlier you start, the more TIME they and/or their tax preparers have to devote to their returns. And more time means more deductions that will save you money. Which brings us to...

There are a lot of writeoffs that never get taken advantage of simply because people are not aware of them. Consider some of the following that are available:

You can deduct 14 cents per mile when you drive your car to and from volunteer work.
You can deduct 13 cents per mile for driving to your doctor, pharmacy, therapist or other medical destination. And if you travel by taxi, bus or other transportation, that cost is deductible, too.
You can claim deductions on your medical expenses IF those expenses exceed 7.5% of your adjusted gross income. Now if you think your expenses won't come to 7.5%, first add up the cost of items like your prescription drugs, medigap and other health insurance premiums. You can also include expenses like any premiums for long-term care insurance for yourself or a dependent, as well as the cost of capital improvements to your home that are medically necessary (like a wheelchair ramp).
And of course, you can always deduct charitable donations, like clothing to Goodwill or canned goods to your place of worship.

The key thing to remember is that deductions are everywhere. You just have to look for them.

Every year lawmakers make changes and adjustments to the way we pay taxes. It's always a good idea to keep up with these changes because many of them can save you money.

For example: Up until 2002, homeowners had to have lived in their house for at least two of the last five years to avoid capital gains taxes on the sale of their home. Now--if they have to move sooner due to illness, death or the loss of a job--homeowners can protect a portion of their gains through a deduction for serial refinancers. If you paid points to refinance a house and then refinanced a second time in 2002, you can deduct the points paid in the first refinancing--minus the slight amount you may have deducted.

Get in touch with the IRS to find out what's new for this year by calling them at 1-800-829-1040 or going online at www.irs.gov.

The income you make from most investments is subject to federal income tax and the IRS will likely tax your investments in two ways: Capital Gains and Dividends.

If you sell your stocks, you will owe federal tax on any profits (capital gains) you make. To calculate your capital gains, subtract the original purchase price from the price you received when you sold your investment. You will owe taxes on the difference between the purchase and sale prices--NOT on amount of the total sale.

Now, if you owned stocks last year, there's a good chance that you LOST money on them. What do you do then? Well, if you sold your stocks before December 31, you can claim your losses (up to a maximum of $3,000) on Tax Form Schedule D to offset any gains you might have had. And if you lost more than $3,000, you can carry forward those losses every year until they are used up.

And, if you receive dividend checks from your broker during the year, the government will tax that money as income. It is also a good idea to check with your tax adviser to see if you will have to pay any state or local taxes as well on your capital gains and dividends.

You will also not owe any income taxes on investments you make in municipal bonds as they are not taxed by the federal government.

And since the price of money market fund shares remains consistent at $1, You will not pay capital gains taxes on them.

You can save yourself a lot of headache by carefully going over all of your tax information before sending it off. Here are some helpful tips to avoid some common tax form errors:

Be sure to check only one box for your filing status.
Make sure you use the right tax table for your filing status.
Include all of your dependents' names.
Check the correct exemption boxes that apply to you.
Avoid making math errors (double check your figures).
Make sure you enter all withholding/estimated taxes on the correct line(s).
Make sure you enter your name and social security number EXACTLY as it appears on your social security card.
Be sure to SIGN and DATE your tax return. It's probably the easiest way to avoid possible delays and penalties.

The IRS has received a lot of negative attention over the years, but has recently made strides in improving its image and service with taxpayers. If you find that you owe taxes and have to deal directly with the IRS, keep in mind that as a taxpayer, you have RIGHTS and you should use them!

The Right to Privacy and Confidentiality--The IRS can not disclose any information you give them, unless authorized by law. You also have the right to know why the IRS is asking you for information, how they will use it and what happens if you do not provide requested information.
The Right to Professional and Courteous Service--If you believe that an IRS employee has not treated you in professional manner, you should tell the employee's supervisor. If the supervisor's response is not satisfactory, write to your IRS District Director or Service Center Director.
The Right to Representation--You have the right to represent yourself. You also have the right to have someone else represent you, as long as you have proper written authorization. You can have someone accompany you at an interview. You may make sound recordings of any meetings with examination or collection personnel, provided you tell the IRS in writing 10 days before the meeting.
The Right to Pay Only the Correct Amount of Tax--You are only responsible for paying the correct amount of tax due under the law-no more and no less.
The Right to Help From the Problem Resolution Office--Problem Resolution Officers can assist you with unresolved tax problems and can offer you additional, special help if you have a significant hardship as a result of a tax problem. For more information, write to the Problem Resolution Office at the District Office or Service Center where you have the problem, or call 800/829-1040 (800/829-4059 for TDD users).
The Right to Appeals & Judicial Review--If you disagree with the IRS about the amount of tax you owe or certain collections actions, you have the right to ask the IRS Appeals Office to review your case. You may also ask a court to review your case.
The Right to Relief from Certain Penalties--The IRS will waive penalties when allowed by law if you can show you acted reasonably and in good faith or relied on the incorrect advice of an IRS employee.
Protection of Your Rights--If you have a question about your rights, ask. The IRS will explain and is bound to protect your rights as a taxpayer.

By using the information that is available, you may make this tax season a smooth one with fewer bumps and surprises and more savings for you. And that's something that will make your retirement--and life in general--a lot sweeter, giving you the time (and money) to do the things you really want to do!

The IRS provides a great deal of free information. The following are sources for forms, publications and additional information:

The AARP Foundation offers free assistance with tax forms through its Tax-Aide Program. The Program is available from February 1 through April 15 and is often located in senior centers, libraries and malls. To find a location convenient for you, call toll-free (888) 227-7669 (888 AARP NOW) and follow the prompts.