The markets have reached yet another all-time high. As always, we have conflicting information: retail sales were higher than expected, but auto loan delinquencies are rising. If you’re nearing or in retirement, now may be a great time to reassess your portfolio and think about taking some risk off the table.
And if you’re 65 or older, the latest tax law gives you a $6,000 deduction this year through 2028. If you’re married, that doubles to $12,000. If you take the standard deduction, this is in addition to that. It’s also available if you itemize. It’s not available if you earn too much; it phases out for seniors with a Modified Adjusted Gross Income of $75,000 for singles and $150,000 for married couples. If you’re close to those numbers, it may be worth talking with your tax professional and financial advisor to see about managing withdrawals to take advantage of the extra deduction.
Another deduction that’s limited by income is the SALT cap, but only for couples making over half a million dollars. Under that, you can deduct up to $40,000 in state and local income taxes. This includes property taxes, and either state income taxes or sales tax, but not both. You do have to itemize to take advantage of the deduction. In a higher tax state like Maryland, the additional deduction should benefit many families and allow more taxpayers to itemize deductions. In a state with no income tax like Florida, the IRS has a calculator on its website to determine a reasonable sales tax deduction, if you would rather not save all of your receipts and calculate the actual tax paid.
A third deduction that should help service and hourly workers is a deduction for tips and overtime. Limited again by income, this deduction does not require you to itemize. The IRS will release a list of qualifying jobs for the tips deduction in October. If you have not always declared all of your tips, this may provide an incentive to do so. You’ll still have to pay Social Security and Medicare taxes on the tips, but no income tax. Because Social Security benefits are based on your 35 highest years of income, paying more into the system may increase your benefits in retirement.
Your action item this week is to open a High Yield Savings Account if you don’t already have one, and split your paycheck to start building an emergency fund. If you’re already saving money with each paycheck, increase that amount by a few dollars.
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CovingtonAlsina is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.