Potential Tax Deductions for Empty Nesters
Wow. It’s awfully quiet around here. We did it honey—they have left the house and have solid futures. And that breeze coming in the window right now. You don’t think that breeze is all our tax deductions flying out the window do you? Maybe we need to investigate potential tax deductions.
Yes. Your children have flown the coop. Do you know what else had flown the coop? A bevy of potential tax deductions: Personal Exemptions, Child Tax Credit, Earned Income Credit, Child Care Credit, and the College Tuition Credit. These deductions vanish at the same instant in your life that you and your spouse likely earn the most money—oh, that Murphy’s Law.
For single parents the problem is even more serious. There is not a spouse to claim, the standard deduction is lower, and non-taxable child support is finished.
Higher income + fewer potential tax deductions = higher taxes. This fact still may not persuade you to bring the kids back, but potential tax deductions deem investigation.
Three Potential Tax Deductions
Downsize Your Home
It pays for empty nesters to downsize the home. Married couples can exclude up to $500,000, a single person can exclude $250,000 of gain on the sale of a home. For those scoring at home, this potential tax deduction may provide a half-million dollars income tax free.
No other provision of the federal tax law is as generous. Considering there are fewer bodies running around the home, this may be the perfect time to cash in and find a less expensive place.
As an empty nester ready to downsize, this tax strategy may be perfect.
Deduct Charitable Donations
Are you an empty nester who gives money and time to charities? You may be able to write off more donations than you think you can. The IRS allows for deductions for cash contributions, noncash donations (such as clothes, furniture, and food) and even the mileage driven during the course of charitable work. Make sure to review these eight tips for charitable donations.
If you are passionate about your charity work, you can help that motivate you to save for retirement because you could always give away part of your retirement to your charity of choice.
Deduct Your Hobby
What if there was a way to continue to do something you love and create a way to make it tax deductible. There are certain things in this world that are too good to be true.
Chances are whatever you love to do, whatever your hobby or passion is—you spend money on it. This potential tax deduction allows you to take the things you already spend money on and create deductions. You simply turn your hobby into a business. This creates numerous potential tax deductions.
Perhaps your hobby is carving ice sculptures with chain saws. You have a refrigerated out building, and you have many tools to perfect your sculptures. If you turn this into a business, now you can deduct all the tools and supplies you use to make the sculptures.
The out building you use is a potential tax deduction. By claiming a percentage of the rent, interest, taxes, utilities, insurance, and repairs to the building you can make it work for you. You would pay for all of those things whether you have a business or not, so this is a great way to return money to your pocket.
Perhaps it is time to visit those children who flew the coop. As you travel to visit your children and grandchildren you can make the trip a potential tax deduction by checking on new ideas and materials that will improve your ice sculptures, possibly by attending a trade show. The list goes on.
Besides potential tax deductions, if you own your business it can be part of your retirement plan. After you retire, you can continue to do what you love and create income to supplement your retirement and keep the tax deductions.
You can’t replace the children that have left your nest, but you can replace many of the tax deductions they took with them.
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