If you’re retired, here are a few suggestions you will want to take advantage of:
Deduct Medicare Premiums
If you become self-employed after you leave your job, as a consultant, for example, you can deduct the premiums paid for Medicare Part B and Part D, plus the cost of supplemental Medicare (medigap) policies or the cost of a Medicare Advantage plan.
This deduction is available whether or not you itemize and is not subject to the 7.5%-of-AGI test that applies to itemized medical expenses for those age 65 and older in 2016. One thing to remember: You can’t claim this deduction if you are eligible to be covered under an employer-subsidized health plan offered by either your employer (if you have retiree medical coverage, for example) or your spouse’s employer (if he or she has a job that offers family medical coverage).
Consider a Former Vacation Home for Tax-Free Profit
The rules are clearly stated: To qualify for tax free-profit from the sale of a home, that home must be their principal residence and you must have owned and lived in it for at least two of the five years leading up to the sale. However, there is a way to capture tax-free profit from the sale of a former vacation home.
Consider this: you sells the family homestead and cash in on the break that makes up to $250,000 in profit tax-free ($500,000 if you’re married and file jointly). Then you move into a vacation home that you’ve owned for 25 years. As long as you make that house your principal residence for at least two years, part of the profit on the sale will be tax-free.
To determine what portion of the profit qualifies as tax-free, you need to compare the amount of time you owned the property before 2009 and after you converted it to their principal residence to the amount of time, starting in 2009, that it was used as a vacation home or rental unit. Assume you bought a vacation home in 1998, converted it to your principal residence in 2015 and mange to sell it in 2018. The post-2008 vacation-home use is seven of the 20 years you owned the property. So, 35% (7 ÷ 20) of the profit would be taxable at capital gains rates; the other 65% would qualify for the $250,000/$500,000 exclusion.
Gift Your Kids…and Their Kids…
Few Americans have to worry about the federal estate tax. After all, we each have a credit large enough to permit us to pass up to $5,490,000 to heirs in 2017. And married couples can pass on double that amount.
But, if the estate tax might be in your future, make sure to take advantage of the annual gift-tax exclusion. This rule lets you give up to $14,000 annually to any number of people without worrying about the gift tax. If you, for example, have three married children and each couple has two children, you can give the kids and grandkids a total of $168,000 ($14,000 X 12) in 2016 and 2017 without even having to file a gift tax return. If you’re married, your spouse can give the same amount to the same individuals. Note: money given under the protection of the exclusion can’t be taxed as part of your estate after their death.