Are you an “experienced” taxpayer? Here are a couple of age-based tax breaks that seniors  shouldn’t overlook when filing their 2016 returns.

Senior Tax Breaks

1. Claim Your Rightful Medical  Expense Deductions

If  you’re 65 years of age or older, you may have fallen into the habit of  automatically claiming the standard deduction instead of itemizing your  deductions. Taking the standard deduction is often the optimal strategy for  seniors who pay minimal mortgage interest or state and local income or property  taxes. In addition, seniors are entitled to a larger standard deduction than  younger people are.

But  the standard deduction isn’t always the better option for seniors with  significant medical expenses. If you paid Medicare insurance premiums or had  other significant health care costs in 2016, itemizing deductions (including  medical expense deductions) could result in a lower federal income tax bill.

Which  option is better for you? For 2016, you can only deduct medical expenses to the  extent that they exceed 10% of your adjusted gross income (AGI) or 7.5%, if either  you or your spouse was 65 or older as of December 31, 2016. While surpassing  the AGI threshold may seem daunting, many seniors will easily clear the hurdle  if they include all of their medical  expenses.

When  adding up your expenses, remember to count premiums for Medicare insurance,  which qualify as health insurance premiums for purposes of the itemized  deduction for medical expenses. Specifically, premiums for Medicare Parts A, B,  C and D, as well as for Medigap coverage, qualify. (See “Understanding Medicare  Insurance Deductions” below.)

Premiums  for qualified long-term care (LTC) insurance also count as medical expenses for  itemized deduction purposes, subject to the following age-based limits for 2016:

Age as of Dec. 31 Maximum LTC Premium Amount
61 to 70 $3,900
Over 70 $4,870

For  each covered person, count the lesser of premiums paid in 2016 or the  applicable age-based limit. Beyond insurance premiums, add any out-of-pocket  medical costs, such as insurance co-payments and dental and vision care deductibles.  These expenditures also count as medical expenses for itemized deduction  purposes.

Once  you’ve evaluated whether your medical expenses exceed the AGI threshold,  consider other categories of expenses that can be itemized, including:

  • State and local income taxes (or state and local general  sales taxes if you choose to claim them instead),
  • State and local property taxes,
  • Qualified residence interest on a first or second home, and
  • Charitable donations.

You  should itemize if the total of your itemizable expenses exceeds your 2016  standard deduction amount of:

Filing Status Under 65 on Dec. 31 65 or Older on Dec. 31
Single $6,300 $7,850
Married,    filing jointly $12,600 $13,850,    if one spouse is at least 65; $15,100, if both spouses are 65 or older
Head    of household $9,300 $10,850

Also,  bear in mind that the AGI threshold for seniors to claim medical expense  deductions is set to increase to 10% of AGI regardless of their age, starting in  2017, thanks to a provision in the Affordable Care Act (ACA). However, that  could change if the ACA is repealed or revised — or if Congress passes tax  reform legislation that takes effect in 2017.

2. Make Retirement Account Catch-Up  Contributions

If  you’re 50 or older, you can make extra “catch-up” contributions each year to  certain types of tax-favored retirement accounts.

Important note: If you were 50 or older as of December 31, 2016, you have  until April 18, 2017, to make a catch-up contribution for the 2016 tax year.

Which  retirement accounts qualify for catch-up contributions?

Traditional IRAs. Deductible contributions to traditional IRAs can create tax  savings. But many seniors have too much income to qualify for a deduction. If  you don’t qualify for deductible IRA contributions, you can always make nondeductible contributions and thereby benefit  from the traditional IRA’s tax-deferred earnings advantage. The maximum  catch-up contribution for traditional and Roth IRAs (combined) is $1,000 for  2016.

Roth IRAs. Contributions to Roth IRAs don’t generate any up-front tax  savings, but — assuming you’ve had at least one Roth IRA open for over five  years — you can take tax-free withdrawals from Roth IRAs after age 591/2. There  are also income restrictions on Roth contributions. Again, the maximum catch-up  contribution for traditional and Roth IRAs (combined) is $1,000 for 2016.

Employer-sponsored qualified retirement  accounts. Some company retirement plans also allow  employees to make catch-up contributions. If permitted under your plan, you can  make extra salary-reduction contributions of up to $6,000 to your 401(k),  403(b) or 457 account, starting the year you turn 50.

Salary-reduction  contributions are subtracted from your taxable wages, resulting in a federal  income tax deduction. If your state has a personal income tax, you’ll generally  get a state tax deduction, too. You can use the resulting tax savings to help  pay for part of your catch-up contributions — or you can set the tax savings  aside in a taxable account to further increase your retirement-age wealth.

Important note: It’s too late to make a catch-up contribution to your  company plan for the 2016 tax year. But it’s not too early to make one for the  2017 tax year.

Relatively  modest catch-up contributions can accumulate into a large sum over time. To  illustrate, suppose you turned 50 in 2016 and decide to contribute an extra  $1,000 to your IRA each year for the next 15 years. Assuming a modest 4% annual  return on investment, you’ll accumulate about $22,000 in your retirement savings  account by the time you turn 65.

As  an added bonus, making larger deductible contributions to a traditional IRA can  also lower your annual tax bills. (Additional Roth IRA contributions won’t  lower your annual tax bills, but you’ll be able to take more tax-free  withdrawals later in life.)

The  incremental savings can be even greater if your company’s retirement plan  allows catch-up contributions. For example, if you turn 50 in 2016 and contribute  an extra $6,000 to your company plan for each of the next 15 years, you’ll  accumulate about $131,000 by the time you turn 65, assuming a modest 4% annual  return. Plus, contributions to employer-sponsored plans are deductible, which  lowers your annual tax bills.

Contact Your Tax Advisor

Seniors  may be eligible for some special tax breaks that aren’t available to younger  people. Before filing your 2016 tax return, contact your tax advisor to make  sure you take advantage of any special breaks that may be available.

Understanding  Medicare Insurance Deductions

Don’t  forget to include all Medicare and  supplemental insurance costs when totaling up your medical expenses for 2016.  Here are descriptions of the major types of Medicare coverage:

Medicare Part A: Hospital insurance coverage. Most  eligible individuals are automatically covered for Part A without paying any  premiums, because the premiums are considered paid from Medicare taxes on wages  while you or your spouse was working. However, if you didn’t pay Medicare taxes  while you worked and you’re not eligible for free coverage, you could have paid  a monthly premium of up to $411 for 2016, depending on your income.

Medicare Part B: Medical insurance coverage. Even if you don’t  qualify for Medicare Part A coverage, you may be eligible to enroll in Medicare  Part B coverage. This insurance covers doctor bills for treatment in or out of  the hospital, as well as the costs of medical equipment, tests and services  provided by clinics and laboratories. It doesn’t cover other medical expenses,  such as routine physical exams or medications.

For  2016, you probably paid the standard monthly premium of $104.90 ($1,259 per  covered person for the year). Higher-income individuals paid more — up to a  monthly maximum of $389.80 for 2016 (up to $4,678 per covered person).

Medicare Part C: Private Medicare  Advantage health plan coverage. This  coverage is supplemental to government-provided Part A and Part B coverage. Premiums  vary depending on the plan. If you have Part C coverage, you don’t need Medigap  coverage (below).

Medicare Part D: Private  prescription drug coverage. Premiums for  this coverage vary depending on the plan. People with higher income levels pay  a surcharge called the “adjustment amount” in addition to the basic premiums.  For 2016, the adjustment amount could have been up to $69.10 per month (up to  $829 per covered person).

Medigap insurance. This is private supplemental insurance that functions as an  alternative to Part C coverage. Premiums vary depending on the plan.