April 15 can be a stressful day for seniors and caregivers alike. Depending on their health, seniors may need their caregivers to help with tax planning and preparation. The challenge caregivers face in this situation is figuring out in advance if their seniors will owe an amount that requires dipping into savings or selling assets.
Most tax tips for senior citizens focus on maximizing deductions; however, there’s a lesser-known tip that might help save stress when you’re helping your loved one with her taxes this year: By preparing a rough tax projection ahead of time, seniors can avoid the unpleasantness that comes with owing money down the line. From there, you can take steps to rectify your loved one’s financial situation before it’s too late. After all, there’s nothing worse than realizing on April 14 that your loved one doesn’t have enough money in the bank to pay her income taxes — especially if you have no power of attorney over her assets, and cannot move them overnight. Here’s what you need to know about one of the best financial tips for seniors: preparing a rough tax projection.
Taxes Due with Extension
While it’s possible to file for an extension, any estimated tax due must be paid by April 15, lest seniors incur penalties. The solution is to prepare a rough estimate in advance so that the senior or caregiver can arrange necessary funds in time to pay the tax due.
When you’re gathering data for a tax projection, start with income. Multiply your senior’s Social Security payment by 12, and do the same for any monthly annuity or pension payments. Add to that a yearly estimate of dividends and/or interest from investments, and any capital gains or losses. (Most brokerage statements now include this figure. If not, call the broker and ask for a calculation.) Note that interest from bank accounts and certificates of deposit count as income as well.
Next, look for potential itemized deductions. These may include mortgage interest (available from your senior’s chosen loan company), real estate taxes, state income tax paid the previous year, estimated tax payments made during the year, tax preparation fees for that year, and miscellaneous expenses such as safe deposit boxes or investment fees. Be sure to include total charitable contributions.
Medical expenses are a final, major piece of the projection equation, especially for seniors. Go through your loved one’s check registers and credit card statements and list out-of-pocket costs for doctors, dentists, labs, physical therapy, medical equipment, and prescriptions. Also estimate miles driven for medical purposes, which are deductible. Finally, don’t forget Medicare premiums and premiums for supplemental and Medicare D policies, which by themselves may put a senior over the standard deduction.
Once you determine these approximate figures, plug them into the free estimators or give them to your senior’s tax advisor to obtain an idea of what he may owe. Knowing this amount in advance can save tremendous stress. Preparing a rough tax projection every year is one of the best tax tips for senior citizensand caregivers to follow.
As a caregiver, you’re always looking out for the best interests of your senior loved one. A medical alert system can bring additional peace of mind to you both.