Lexington, MA: 781.274.6600
Sunapee, NH: 603.763.0350
Inquiry Form
Tax Tips - Save on Taxes

Retirees

Following below are several strategies and suggestions to help retirees to reduce their income tax liabilities.

 


 

Estimated Tax Payments on Investment Income 

Retired individuals should make estimated income tax payments on the interest, dividends and capital gains income they earn quarterly, if such investment income is substantial (i.e., more than $2,500 per quarter). Otherwise, they may receive a huge, unwelcome income tax bill in March.

Pay attention to the Estimated Tax Payment Due Dates! They are not scheduled at the same time for each Quarter.

Quarter

Dates Included

Due Date

1 Jan. 1 to March 31 April 15
2 April 1 to June 30 June 15
3 July 1 to Sept. 30 Sept. 15
4 Oct. 1 to Dec. 31 Jan. 15 (of the following year)

 

Here's what you need to do each quarter:

  1. Gross Investment Income
    Add all of the interest, dividends and capital gains income that you received during the quarter, as three (3) separate subtotals.

  2. Estimated Federal Income Tax
    Add your interest and dividends income subtotals together, and multiply that amount by 15%. Multiply your capital gains income subtotal by 20%. Add those two multiplied subtotals together; this is the amount of Federal estimated income tax you will pay.

    Make a check payable to "United States Treasury" in the amount of the Federal tax, write your SSN and "201X Form 1040-ES" (replace “X” with the last digit of the year) on the front of your check, and sign it.

    Mail your check along with the corresponding Form 1040-ES to the address printed on the form.

  3. Estimated State Income Tax (Massachusetts residents only)
    Add your interest, dividends and capital gains income subtotals together. Multiply that amount by 5.1%. This is the amount of Mass. estimated income tax you will pay.

    Make a check payable to "Commonwealth of Massachusetts" in the amount of the Mass. tax, write your SSN and "201X Form 1-ES" (replace “X” with the last digit of the year) on the front of your check, and sign it.

    Mail your check along with the corresponding Form 1-ES to the address printed on the form.

  4. Estimated State Income Tax (New Hampshire residents only)
    Add your interest, dividends and capital gains income subtotals together. Multiply that amount by 5%. This is the amount of N.H. estimated income tax you will pay.

    Make a check payable to "State of New Hampshire" in the amount of the N.H. tax, write your SSN and "201X Form DP-10 ES" (replace “X” with the last digit of the year) on the front of your check, and sign it.

    Mail your check along with the corresponding Form DP-10 ES to the address printed on the form.


Tax Tip:

Make your 4Q Mass. or N.H. estimated payment during the last week of December, instead of on Jan. 15. This will allow you to deduct that one payment on this year’s Federal income tax return. (There is no tax benefit to making your 4Q Federal payment any earlier)

I would be happy to prepare a complete set of pre-filled-in Federal Form 1040-ES and either Mass. Form 1-ES or N.H. Form DP-10 ES forms for you to use to make your quarterly estimated tax payments.

 


 

Qualified Charitable Distributions (QCDs)

Individuals who own IRAs generally must begin to start receiving distributions from their IRAs by April 1 of the year following the year in which they reach age 70½. These are known as Required Minimum Distributions (RMDs). Such distributions would be reported as taxable income on Form 1099-R, and may incur an income tax liability.

Individuals who make donations to charities may report such contributions as itemized deductions on Schedule A. To the extent that the individual has taxable income to be offset, the net result of the charitable contributions is a reduction of income tax liability.

However, individuals who take the standard deduction receive no tax benefit from making charitable contributions.

Calculator MontageA qualified charitable distribution (QCD) is a nontaxable distribution made directly by the trustee of your IRA to an organization eligible to receive tax-deductible contributions. You must be at least age 70½ when the distribution was made. Also, the organization must provide you with the same type of written acknowledgment of your contribution necessary for you to claim a deduction for such charitable contributions. A QCD will count towards satisfying your RMD requirement for the year. Note that SEP or SIMPLE IRAs are not eligible for making QCDs, however.

The maximum annual exclusion for QCDs is $100,000. Any QCD in excess of the $100,000 exclusion limit is included in income, as any other distribution. If you file a joint return, your spouse can also make a QCD and exclude up to $100,000. The amount of the QCD is limited to the amount of the distribution that would otherwise be included in income. If your IRA includes nondeductible contributions, the distribution is first considered to be paid out of otherwise taxable income.

The ability to contribute directly to a charity from an IRA is a very important tax advantage for certain taxpayers. The provision allows IRA owners who are 70½ to give directly to a charity and avoid reporting that income on their tax return. Thus, a QCD lowers modified adjusted gross income (MAGI). This could lower or eliminate the taxation of Social Security benefits. A QCD could also lower Medicare Part B and prescription drug premiums for those with higher income because MAGI is used to calculate such premiums.

 

Return to Top

Home | Company Profile | Clients | Services | Partners | Testimonials | Tax Tips | Resources | Contact Us
Copyright © 2010 - - All rights reserved. TwardyCPA.com & the TwardyCPA Logo are trademarks of Joseph T. Twardy, Jr., CPA, LLC.