Bob Simpson, CPA, founder of Brinker Simpson & Company, joins us to share tips and tricks to reduce your tax bill by maximizing senior deductions. 

In this episode, you will learn about standard tax deductions for seniors, how to use Medicare premiums as a building block off your standard deductions for additional benefits, important information regarding pensions, and more. This valuable information will help seniors understand and take advantage of the deductions available to reduce their income taxes each year.

 

Video Transcript

- Hello everybody, and welcome into Senior Living Live. My name is Melissa. Thanks for being with us today. Now, if you're looking for ways to cut your tax bill, and I think we all are, this video is for you. Bob Simpson is with us today to share his tax tips and tricks for seniors. Bob joins us as a part of our partnership with Elderlife Financial, a wonderful company that is here to help you with all of your retirement needs. And on that end, Jeff Hudson, you see him there. He is here from Elderlife Financial to tell us a little bit about how they can help you. Jeff, good to see you.

- Yeah, absolutely, thanks Melissa. So guys, just a quick overview of Elderlife. We've been around for over 22 years now, and we've been proud partners with Arbor communities since 2011. Really, the best way to describe Elderlife is to compare us to a financial aid office at a college or a university. We're a one-stop shop to help families build a long term game plan to pay for their Arbor community, so in a single phone call, we're gonna help with veterans' benefits, understanding insurance policies, such as long-term care insurance or life insurance policies. We can connect families to local senior-focused real estate agents, to not only help with the sale of their home, but to build a transition plan for that move into an Arbor community. We educate families on potential tax deductions, as you're gonna hear from Bob in just a second, and we specialize in a short term bridge loan, so a senior can move in immediately to an Arbor community while they're waiting for other resources to begin. So I'm gonna go ahead and step aside and let the tax guru, Bob Simpson, take over and really explain how tax deductions can reduce your cost of senior living. Bob, you wanna give a quick introduction of yourself?

- Good afternoon, and my name is Bob Simpson. I'm a CPA in the Philadelphia area, and my firm is Brinker Simpson and Company. We're a full service CPA firm, been in business for 35 years. I have a staff of about 55 to 60 people now, and we specialize, I guess, in individual and small business tax planning. We have a robust audit financial statement department, valuation team, and outsourced accounting department, and we're in fraud, forensics, and litigation support.

- That's a lot of great stuff, and we talk about taxes, and I'm not a big fan of taxes. I know a lot of people are not fans of taxes, but you guys love it. And we love that. And that's why you're here to help. That's why we're talking to you today, to get all of these wonderful tips and tricks from the pros, like yourself. So, tell us a little bit about the standard tax deduction, specifically, as it relates to seniors. How old do you have to be to get it, and how much are we talking here, Bob?

- Sure. So the standard tax deduction was enhanced a few years ago, as part of the administration's Tax Simplification Plan, and they simply really doubled the standard deduction to make it simpler for more people, including many seniors, to file their tax return without having to itemize their deductions. So for 2022, if you are married, filing a joint return, and both you and your spouse are over 65, the standard deduction is 28,700, which simply means the first 28,700 of income you have will be tax free.

- Great, yeah, that's pretty simple, I like that. And I like that there's very specific numbers, so people can work with that, right. So one.

- Goes up every year, right.

- Yeah, oh exactly, yeah so. Another deduction, that I personally was not aware of until I started preparing for this interview, was Medicare premiums. Tell us how that works.

- So Medicare is a health insurance plan for seniors subsidized by the government, so it acts just like any other health insurance deduction, which would be included with all of your medical expenses in a total amount that has to exceed 7.5% of your adjusted gross income in order to be deductible. If it does exceed that amount, that excess would then be added to your other personal deductions, which include your state and local real estate taxes, your mortgage interest, if there is a mortgage, and your charitable gift giving. Those numbers then would be compared to the standard deduction of 28,700 that we just spoke about, and if that total exceeds the 28,000, you get the higher number.

- Gotcha, so it's like building blocks or building off that standard deduction, that's great. And again, numbers that people can work with, right. So, okay, pension, right. People, hopefully when they retire, if they got lucky with the career that they had or the job that they had, they got a pension, so how can seniors who are taking a pension avoid taking a big hit on payouts?

- Yeah, so that's a very common question, because pension amounts, IRA amounts, 401k withdrawals, have all risen due to some significant returns in the investment markets, at least up until this year. Things have turned around a little bit. But even though there's a lotta capital gain inside your pension account, when you make the withdrawal from your pension, you have to pay tax as ordinary income, so it gets added as ordinary income, and you pay the higher tax rates. That would be your pension from work. That would be your IRAs, your annuities, and your 401k accounts. You can defer taking those personal pension accounts until you hit a certain age, if you don't need to take the money out ahead of time. I mean, work pensions are designed by the company you worked for to pay you a certain amount over a period of time, so unless you've rolled over your work pension into an IRA account, you don't have any real control over the frequency of pay. Once you hit age 72, and this age was moved up from 70.5 a couple of years ago, you're required to take what they call a minimum distribution from all of your managed retirement accounts, 401k, and regular IRA accounts. You're able to defer the withdrawals and the taxes that go with that withdrawal until you hit that age 72. The age may rise, as people tend to work longer. It did rise by two years, a couple of years ago, and there is talk in Congress right now about increasing that from 72 to 74, where you're mandated to take the retirement money out. One tax savings that certain of my clients use with retirement money is the ability to take retirement money and contribute it directly to a charity, if you're so inclined. So, you can do this up to $100,000 a year, if you've reached age 70.5. Now, 70.5, you're not required to take money outta your retirement account, you're still not required until 72, but you can use this tool, if you're looking to contribute to charity. So, the money would go direct from your IRA, let's say, to a qualified charitable organization, and you don't pay tax on that money since it goes direct, and you don't put your hands on it. So that's one way, again, up to 100,000, that you could take out tax free income, use it for a charitable event, and pay no tax on it.

- Gotcha, yeah, so the ages we're looking at, 70.5 for the charitable donations, 72 to not be penalized for your, for not taking anything out of your pension or your 401k.

- Yeah and one point is that if you miss your required distribution, there is an excise tax on the amount that was missed, and that's a 50% tax. So you have to make sure that when you're at age 72 that you are speaking to your investment people, and you're ready to make that withdrawal, because that tax, that excise tax, is very expensive.

- Wow, yes, it is. That is shocking. Yeah, thank you for passing that along, and I know people who are watching coming near that age, coming up close to that age, or if they didn't know that before, they're very happy to know that now. So Bob, as we get a little closer to winding down our interview, are there any not so well known tax breaks for seniors?

- There's some things that can be done with proper planning, gifting of assets and gifting of wealth, creating some trusts that can lead to lower taxes, that many seniors will take advantage of. There are some sophisticated avenues to be explored and planned, not only with the CPA, but with your estate planning attorney, who can then draft documents to legalize everything. Outright gifting and the limits there are very significant right now. Can shift assets and any corresponding taxes with those assets to younger generations. Trusts that you set up can do the same thing. They can also be good estate planning tools, if your assets are at the estate tax level. Right now, if a couple were to pass away, it's about $23,000,000 of assets that would pass free of federal tax. Now, that will sunset in 2025, and it has been an issue that the Biden administration has looked at often to try to bring that number down. So, but for right now, it's still about $23,000,000. If you're under that, you really don't have a reason to plan any estate taxes. There's some low income tax credits for people that are on the other side of the spectrum with lower income, so if your incomes don't hit certain levels, there are tax credits available that would reduce your tax. One thing that many of my clients would take advantage of is, if they're taking the required minimum distributions out, and they don't need the money monthly, they'll wait until December and take one lump sum payment out. And then, on that payment, they'll have all of the taxes withheld that they would need for the entire year. So in December, they take a payment, they pay all of their taxes. The government treats that tax withholding as if it had occurred all year long, so you've been able to keep that money for the entire year. And in a good investment market, which this year isn't yet, you'd be able to make that investment return on that money all the way up until the end and then take it on the last day of the year, which is a little bit of a ploy that some of my clients will use, again, if you don't need the money monthly. A couple who sells their primary residence, if they're at that point, when they're going to go into assisted living, and they need to sell their house, they can exclude the first $500,000 of gain on that sale. So, any gains beyond that would be taxed as long term capital gains at lower tax rates, but the first 500,000 in today's rules, and again, this is a rule that's being looked at very frequently, the first 500 is tax free. And if you're actually, you have two residences let's say, you have a vacation property and you have a primary. You sell your primary, move to your vacation home, as long as you stay in that vacation home three years as your primary residence, you can then sell that home and again exclude $500,000 of gain. So you've got $1,000,000 of income that is tax free by doing the two resident rules. Deductions can be available for fees paid to assisted living, just as medical expenses, including the upfront payments, if they exist. Usually in assisted living centers, they'll give an estimate of what they believe the medical portion of the annual fees are. But if you can document that you are using more of the cost for direct medical expenses, then you can take tax deductions for amounts that exceed the recommended percentage. And I have some clients that are deducting 100% of their assisted living fees, because they're in there 100% for medical care. It's very expensive, but again, it wipes out the tax on the income that they have to draw in order to pay those fees, so they really are getting tax free assisted living money there, which is. And taxes are very expensive, as you know. Some of those rates are up at 37%.

- Yeah.

- So those are, those are some of the things that seniors can take advantage of.

- You know, we've been doing this for a couple years now, and you just rattled off, off the top of your head, many tax breaks that I was not aware of and have not heard of yet, so I hope that our viewers out there appreciate that and are jotting this down immediately, especially, before some of those changes potentially take shape over the next couple of years. Bob, fantastic stuff. So, as we wind down, right, if someone has additional information about your services, or they've watched this and says, "I need this guy to help me," how can they get in touch with you?

- Well, the best way is by email, which is RSimpson@BrinkerSimpson.com. Our office phone number is available for everybody. It's 544-5900, or check us out on the web at www.brinkersimpson.com. Everybody seems to find me, so any way works.

- Perfect, and you can help anybody? We have viewers from around the country, is that right?

- Correct. Now, there are some states that treat medical deductions and senior taxes differently than other states. For instance, Pennsylvania is a great state to retire in, because they don't tax retirement income, nor do they tax social security benefits. So it's a great state to retire in, however, Pennsylvania has a death tax. So they, they do tax your estate, that many states don't tax. So, they say that Pennsylvania's a great state to retire in, but if you feel like you're ready to die, you gotta get to Florida, 'cause Florida has no death tax, so. But yeah, we do work with clients all over the country, and we do know the rules in their specific states, 'cause they are different in every state.

- Yeah, and this is why someone would call you in the first place, because very, I have to imagine very few people know the ins and outs the way you do. You've been dealing with it and working with it and in it for so long. Bob, fantastic information, wonderful information, and we really do truly appreciate you taking the time out to share your knowledge.

- Not a problem, always happy to help.

- Yeah, thank you so much. What a wonderful video. Now, if you found this video with Bob informative, I encourage you to head on over to our website, www.seniorlivinglive.com. We've got more videos, just like this one, all about senior living. We thank you so much for being a part of Senior Living Live. Have a great day, everybody.

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