Money Matters – Mother’s Day: Tax Planning
BOSTON (CBS) – There are tax breaks your parents can take advantage of.
Take a look at their tax returns for the last three years and if this job is beyond you hire someone to do it. Have they been filing their tax returns in a timely manner? Do they need to file returns?
Are they making estimated tax payments on time? Have they been filing the short form because it’s been easier? They may have been paying too much in taxes simply because it is easier! Or worse, they may not have filed a tax return because it was just too much work. And after the first year when the IRS didn’t call them on it, they figured it was okay.
There is help available with their tax returns, The Tax Counseling for the Elderly (TCE) Program offers free tax help to individuals who are aged 60 or older but only until April 15.
Nonprofit groups such as AARP have volunteers who have been approved and trained by the IRS. They will offer technical assistance to elderly individuals in the preparation of their Federal Income Tax Returns. Contact the local Council on Aging in the town they live in for more information.
Some cities and towns have a real estate tax rebate program for their elderly or disabled citizens. Check with the tax collector where they live. Some towns have work programs where an older citizen can work off some of the real estate taxes they owe.
If Mom and Dad’s largest asset is their home and moving into something smaller works for them there is tax break. There is an exclusion for capital gains tax when you sell your primary residence. For example, Mom and Dad bought their Victorian house in Dorchester for $50,000 and it is now worth $500,000.
They have another $50,000 invested in the house for the paved driveway, the addition and storm windows. When they sell the house they will have capital gains of $400,000. Current tax laws allow them to exclude from capital gains up to $500,000. So they would owe no tax on the $400,000. The IRS rules for the sale of the home are as follows:
- Must have owned and occupied the house for 2 of the last 5 years
- Must be your primary residence
- $250,000 exclusion for individual
- $500,000 exclusion for married individuals filing a joint tax return, both names do not need to be on deed
If mom and dad have reached the magical age of 70 beware that they must begin mandatory withdrawals from their retirement plans at age 70½. Don’t mess with this one, for the penalty is 50% of the missed distribution.
Tax tips from the IRS: http://www.irs.gov/individuals/retirees/article/0,,id=154021,00.html
Tax tips from the Massachusetts DOR: http://www.mass.gov/Ador/docs/dor/TaxTips/seniors10.pdf