Older Families Can Take Action to Lower Their Tax Bill
Virginia Beach, VA (Law Firm Newswire) July 30, 2015 – There are many tax savings that are available to older families. Such tax breaks can be achieved in several areas, including work, car and home, estate planning, medical expenses and rental property.
In terms of realizing savings at work, a hefty tax refund implies that an excessive amount of tax is being withheld from one’s paycheck. One can correct this by filing a new W-4 form with one’s employer. There are also savings to be had regarding the payment of medical expenses. Some employers offer a medical reimbursement account, or flexible spending account (FSA) that allows employees to contribute part of their salary to an account that they can then use to pay medical bills. In so doing, one can use pre-tax dollars to pay for medical expenses, and thus avoid paying income and Social Security tax on those funds, thereby realizing a savings of 20 to 35 percent.
“Taking steps to save money on taxes now will help to ensure that there is more in one’s estate that will be left for one’s beneficiaries,” said Andrew H. Hook, an estate planning attorney with Hook Law Center, with offices in northern Suffolk and Virginia Beach.
Working from home also has its tax advantages. Regular and exclusive use of part of the home for one’s business can qualify one to deduct certain costs as home-office expenses. Among these are home maintenance expenses, utility bills and insurance premiums. And in lieu of listing actual expenses, one can now claim the home office deduction by deducting $5 per square foot, up to a limit of 300 square feet, for a total of $1,500.
When creating an estate plan for one’s heirs, it is important to make certain that the beneficiary designations in one’s IRAs and 401(k)s are current. It could be very costly if an IRA or 401(k) is left to one’s estate instead of a designated beneficiary.
Another tax savings is one that is associated with an inherited 401(k) plan. The beneficiary can roll over the plan into an IRA and extend payouts as well as their taxes over his or her lifetime. The previous rules provided only a five-year time limit within which to cash out the account and pay all taxes. However, in order to qualify for this 401(k) tax savings, one is required to be designated as the beneficiary. If the plan is left to the owner’s estate and subsequently to the beneficiary, then the prior five-year rule will be applied.