Some things do get better as you age
By Deborah Adamson
Advertiser Staff Writer
The elderly get perks beyond qualifying for discounts from retailers and reduced bus fares — they get more tax breaks.
If you're 65 or older, Uncle Sam and the state of Hawai'i will give you a break. Also, there are tax deductions and credits that apply to everyone, but which are more likely to be used by seniors.
Here are six things to consider when you file your taxes this April:
• Remember to make note of all retirement income that's totally or partially state tax-free.
"Many people forget to back out those items," said Aaron Masuoka, a certified public accountant at Deloitte & Touche in Honolulu.
Unlike the federal government, the state doesn't tax income from Social Security, fully funded employer pensions and part of certain retirement plans. So when you're copying your federal adjusted gross income onto your state return, remember to subtract all income that's fully or partially state tax-free.
For instance, on line 7 of state tax form N-11, retirees fill in their federal adjusted gross income as calculated on form 1040, 1040A or 1040EZ.
On line 13, subtract pensions not taxed by Hawai'i. Fill in your income from Social Security and pensions solely paid for by the employer. If you had income from retirement plans in which you and your employer put in money — such as a 401(k) or 457 plan — these might be partly tax-free.
To calculate what amount is taxable, fill out Schedule J. You can download the form from www.state.hi.us/tax or go to any state tax office to ask for it. You also could have the form faxed or mailed to you by calling 587-7572 on O'ahu or (800) 222-7572 statewide.
• Medical and dental expenses deduction: If your medical expenses exceeded 7.5 percent of your adjusted gross income in 2004, you can deduct them from your federal tax return, said Doreen Griffith, senior tax manager at Grant Thornton in Honolulu.
That's a tough hurdle for many young workers, but it's not necessarily true for retirees who live on a modest income.
Let's say your adjusted gross income for 2004 was $24,000, or $2,000 a month. Your medical expenses must exceed $1,800 — or $150 a month — to take this deduction.
Medical expenses allowed as deductions range from prescription drugs, hospitalization and laboratory fees to acupuncture services, weight-loss program fees and home improvements to accommodate your medical condition. Long-term care services and insurance premiums also can be deducted.
For details, see www.IRS.gov and type "publication 502" in the "search for" box. You also can call (800) 829-1040 for help.
The state also allows this deduction. For more information, check the N-11 instruction booklet.
• Additional state personal exemptions: In Hawai'i, people 65 or older can claim additional personal exemptions on their tax returns. A personal exemption is an amount that's subtracted from your income. Most people can claim one exemption for themselves and dependents.
Seniors in Hawai'i get two each; one exemption is worth $1,040 and two would be $2,080. So a married couple filing jointly with no dependents would be able to deduct $4,160.
People who are blind and deaf, whose conditions are certified by a doctor, can claim $7,000 each. Those that are totally disabled, whether physically or mentally, and who don't make more than $30,000 a year also can claim the exemption. Check the N-11 booklet for details.
• Taking the sales tax deduction: Retirees who have little or no state income taxes, and who itemize, can benefit from this new tax break.
Starting in the 2004 tax year, you can choose whether you want to deduct your state and local sales taxes or your state and local income taxes on your federal tax return.
Hawai'i's general excise tax is considered a sales tax, according to the IRS.
For most working people, state income taxes will be higher than the sales tax deduction, so it doesn't make sense to opt for the sales tax, said Dick Freitas, president of the Hawaii Society of Certified Public Accountants and a principal at Hedberg, Freitas, King & Tom LLP in Honolulu.
That may not be true for retirees.
If you didn't save receipts, the IRS Web site has a state-by-state table that gives you an amount you can deduct depending on your total income. Go to www.irs.gov and enter "Publication 600" in the "search for" box.
An exception: sales taxes paid for items used in your trade or business don't count.
At present, you cannot claim this deduction on your state tax return because the Legislature hasn't yet decided whether it wants to adopt it for the state.
If legislators adopt it after April 20 — the deadline for filing your state tax return — you might consider amending your return.
• State low-income refundable tax credit: Hawai'i residents with adjusted gross incomes of $20,000 or less a year can claim a credit of $10 to $35 per qualified person.
Restrictions include the following: you must have lived in the state for more than nine months last year and you're not claimed as a dependent on another taxpayer's return.
• State low-income household renters credit: If your adjusted gross income was less than $30,000 and you spent at least $1,000 of your own money for rent last year, you can get a tax credit of $50 per qualifed exemption.
Also, you must have lived in the state for more than nine months in 2004, you must not be claimed as a dependent on another taxpayer's return and the property must not be exempt from property taxes. Fill out Schedule X.
Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.
