Yahoo Finance 4 Ways Boomers Are Losing Their Money Doing Their Taxes
Preparing your taxes can feel like playing a game of strategy. You have to plan to save the most money and potentially get the largest return. While everyone sits down to do their taxes with different sets of individual needs, there can be common issues among certain generations.
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The tax rules have changed for baby boomers since they first had to circle Tax Day on their calendars. While boomers may feel like they’ve had the life experiences to help manage all aspects of their finances, there may be ways this generation is losing the game of strategy — along with their money — when paying their taxes.
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They’re Not Thinking Ahead
Chris Urban, CFP, RICP, founder of Discovery Wealth Planning, is used to thinking about long-term success when planning and managing finances. His advice for baby boomers is to be more forward-thinking when it comes to tax planning. Setting their sights on the long term can help reduce the amount of taxes they’ll pay throughout their lifetimes.
“Many people that prepare their own tax returns or work with a tax professional just focus on their tax situation for this year or preparing last year’s return,” he said.
Baby boomers are no exception to this common way of handling taxes, and in focusing on how much they can save one year at a time, they miss opportunities to save more in total throughout their golden years.
“Proactive, forward-looking tax planning looks several years into the future to see what your tax situation may be,” he said. “This could unlock opportunities that may require a higher tax burden now to save more later.”
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They Miss Out on Key Deductions
According to Lisa Greene-Lewis, CPA, tax expert at TurboTax, one of the biggest mistakes baby boomers make with their taxes is missing the additional standard deduction for ages 65 and over.
“Everyone should think about the inflation adjustments for tax year 2023 as they increased the most we have seen in decades (close to 7%), but especially if you are over 55,” she said.
Greene-Lewis explained that inflation adjustments increased tax benefits like the standard deductions income brackets.
“The standard deduction increased from $12,950 to $13,850 single and from $25,900 to $27,700 married filing jointly,” she said. “Filers who are blind or 65 plus will get an extra bump of $1,500 married filing jointly and $1,850 single.”
They’re Not Factoring in Retirement
For Michael Wallace, CEO of Greenback Expat Tax Services, one of the biggest mistakes baby boomers can make when preparing taxes involves not putting enough money into their retirement savings — including the extra contributions they’re allowed, like “catch-up contributions.” It can be a costly mistake, causing boomers to pay more in taxes than they need to.
He added that boomers must take a careful look at how they’re managing their retirement savings when preparing their taxes.
“Not managing the minimum amounts they must withdraw from retirement accounts properly can cost them a hefty ton in taxes if not planned accordingly,” he said. “Additionally, many boomers pull money from their retirement funds without knowing how it affects their taxes.”
They Don’t Know About Energy Efficient Credits
As they settle into their retirement years, many baby boomers work to make their homes more energy efficient, hoping for greater comfort and to cut down on monthly utility bills. However, these adjustments can also help them save money on their taxes, as well.
Though many boomers might not be aware of the ways that prioritizing energy efficiency can benefit them come tax time, Greene-Lewis suggested that they’d be wise to look into some of the tax credits available to them.
“If you made energy efficient improvements in your home or bought an electric vehicle, the Inflation Reduction Act expanded energy efficient credits,” she said. “If you put energy efficient improvements in your home like windows you can take a credit up to $1,200 up from the $500 lifetime credit. Under the expansion, there is no longer a lifetime credit limit.”
She added that people who installed solar panels can receive a credit for 30% of the cost of those panels.
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This article originally appeared on GOBankingRates.com: 4 Ways Boomers Are Losing Their Money Doing Their Taxes
