Tax Considerations for the Retiree – Investment Income and Other Issues
Your income situation as a retiree is probably quite a bit different than it was when you were working. There may be multiple streams of income to account for, as well as other unique factors to consider from year to year.
Investment income is an essential item to cover here, since this is likely to represent a meaningful portion of your retirement income. There may also be some odds and ends that impact your tax strategy in other ways, so we’ll take a look at those too.
This article is second in a series on Tax Considerations for the Retiree. Read of the series here:
- Tax Considerations for the Retiree – Family and Filing Issues
- Tax Considerations for the Retiree – Investment Income and Other Issues
- Tax Considerations for the Retiree – Qualified Plan Issues
When it comes to your investment income, here are the issues you want to consider:
Are You Reporting Investment Interest?
Investment interest should be reported on Form 1040, Lines 2a and 2b. You will also want to look at Schedule B to get a better idea of which accounts are generating interest and see how you reported them in 2018.
Did You Receive Dividends?
Dividends will also be reported on Form 1040, but on Lines 3a and 3b. Again, look at Schedule B to see whether the dividends are ordinary or qualified and how to proceed with reporting this income.
How Does Your MAGI Impact Your Net Investment Income?
If you have a MAGI above $200,000 ($250,000 MFJ), and significant investment income, you may be subject to an additional Net Investment Income Tax of 3.8% (Form 8960). Talk to your tax professional to learn more about whether this additional tax will affect your bottom line and to see whether there are strategies you can use to offset this liability.
Did You Have Capital Gains or Losses?
Look at Form 1040, Line 6 for reporting capital gains or losses. If you have Capital Gain Distributions, you’ll want to consult Schedule D, Line 13 for more information about reporting. For losses, look to Schedule D, Lines 6 and 14 to calculate your short- and long-term loss carryovers. Ensure that you account for losses carried over from previous tax returns.
Other Issues
Additionally, there are some tax issues that fall outside of the broader categories, but still need attention when you’re working on your tax strategy. These other issues include:
Medical Expenses
If you had large medical expenses during the year, you may be able to deduct a portion of the expenses from your tax responsibility. Look at Schedule A, Line 1 to understand more about your medical expenses and the deduction limit. You will also want to factor your Medicare Premiums and Long Term Care Premiums into your total medical expense figure.
State Taxes
As always, you will need to consider your individual state tax responsibility in addition to your federal taxes. Your state tax return from 2018 should contain information to help you get a better idea of what your state tax liability will be for this year. Your tax professional can help you to determine how state laws impact your tax strategy.
Real Estate
If you own rental properties, you may be able to claim deductions. Consult Schedule E for more details on how to claim your rental real estate deductions.
These are only some of the considerations that you need to make as you review your 2018 tax return and prepare for the upcoming tax season. To learn more about tax considerations for the retiree, see our post on family and filings issues.
This article is second in a series on Tax Considerations for the Retiree. Read of the series here:
- Tax Considerations for the Retiree – Family and Filing Issues
- Tax Considerations for the Retiree – Investment Income and Other Issues
- Tax Considerations for the Retiree – Qualified Plan Issues
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.