Retirees, and those about to retire, face some daunting tax questions and dilemmas. Depending on how much you have prepared for retirement will increase your enjoyment during retirement. Unfortunately, no two retirements are the same. Regardless if you are living on a pension, social security, investments, or a combination, below are some tips a retiree will benefit from.
1. Choose the state you live in wisely. All states have different ways of taxing retirees. For instance, California and New York are considered non-tax friendly, while Arizona and Florida are considered tax friendly. The differences include: sales tax, tax on social security, property tax, income tax, and inheritance tax. Be sure to do your research, the different tax burdens state-to-state can be in the thousands of dollars.
2. While keeping the above tip in mind, choose a state which does not tax your social security earnings. Some retirees only have their social security to live off each month. Living in a state such as Nebraska or Minnesota which tax social security, may be too much for a retiree to handle.
3. Reassess your living situation. Some individuals enjoy a large home, some look for amenities, while others value a country over city living. If you prefer a large home, know a significant portion of your retirement will go towards maintenance, care, and property tax based on square footage. The size of your home is a completely personal decision, but base it off of your needs verses your desires. Shaving a few thousand dollars off of your property tax bill can make a huge difference.
4. Take advantage of credits and deductions during your yearly federal tax filings. Leaving “money on the table,” as some may say, could greatly affect your bottom line. If you usually do your taxes yourself, consider utilizing a tax preparing service during your first full year of retirement. By doing so, you will have a baseline tax return for future years. This professional prepared filing will show you ways on how to make these deductions, which may prove useful in the future.
5. Lastly, and if you have money to spare, give it away! This may sound counter intuitive, but you will receive tax benefits from gifting or donating your retirement money.
Again, no two individuals will be in the same retirement situation. What will be good for you may not be good for your neighbor. However; one thing no individual has ever been harmed by is having a solid retirement plan.