SENIOR CITIZENS

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The tax laws offer several tax advantage just for those who are age 55 or older. Learn how to take advantage of your age when tax time rolls around. It can save you money.

Following are some tax facts for taxpayers age 55 and over. Remember, these tips are general information. Every tax situation differs. That�s why at "J.L. Galang" we treat you with the special attention your particular tax situation deserves.

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STANDARD DEDUCTION

For 1997, use the standard deduction amount shown for your filing status on the chart below,

• and ADD an extra $1,000 ($800 if you are married, or use the qualifying widow(er) status) if you are 65 or older or blind.
• or, ADD an extra $2,000 ($1,600 if you are married, or use the qualifying widow(er) status) if you are 65 or older and blind.

MEDICAL EXPENSES

Your unreimbursed medical expenses are deductible if you itemize. The total of these expenses must be entered on Schedule A and then be reduced by 7.5 percent of your adjusted gross income. This makes it important for you to keep complete and accurate records of these expenses. Remember, you can deduct the cost of medical care, prescription medicines and drugs, medical insurance premiums, eyeglasses and hearing aids (and the batteries), as well as the cost of transportation related to medical services. In addition, you may be able to deduct all or part of the cost of structural improvements made for medical purposes to your dwelling.

ESTIMATED TAX PAYMENTS

To avoid underpayment penalties, you must generally pre-pay 90 percent of your current-year liability or 100 percent of your prior year�s tax in a timely fashion. Other requirements apply at certain income levels. Work with your "J.L. Galang" tax return preparer to make sure your estimated tax payments are sufficient to avoid a penalty.

SOCIAL SECURITY BENEFITS

Your social security benefits may be taxable, depending on your tax filing status and income level. If your income is above a certain amount based on marital and filing status, then some of your social security benefits will be taxable.

To see how your benefits will be taxed, first add together your adjusted gross income, tax-exempt income and one-half of the social security benefits received.

If the total is less than $32,000 (for married couples filing jointly) or $25,000 (for single filers), no social security benefits will be subject to tax.

If the total is between $32,000 and $44,000 (for married couples filing jointly) or between $25,000 and $34,000 (for single filers), up to 50 percent of the social security benefit is taxable.

Finally, if the income total is more than $44,000 (for married couples filing jointly) or $34,000 (for single filers), up to 85 percent of social security benefit is taxable.

Special rules apply for taxpayers who are married filing separate returns.

RETIREMENT BENEFITS

Your pension or annuity will be fully or partially taxable depending on how you contributed to the plan.

If you made no contributions to the pension plan or annuity during the period of your employment (that is, the employer paid all the costs), your pension or annuity will be fully taxable. The same is true if the plan was funded only with pre-tax dollars (that is, your contributions were deducted from your pay check before tax).

If you contributed to your pension or annuity with after-tax dollars, part of the amount you receive is considered a return on your investment and is taxable.

If you receive a lump-sum distribution, you may defer the tax on the distribution by rolling it into an IRA within 60 days after you get it. Lump-sum distributions are subject to a 20-percent withholding of income tax. You can prevent the withholding by telling your employer to transfer the distribution directly into an IRA.

There�s an additional 10-percent tax on the taxable portion of most early (before you are 59½) distributions from qualified retirement plans unless you roll the distribution over into an individual retirement arrangement within 60 days of receiving the distribution. Because there are exceptions to this rule, you will want to consult with your "J.L. Galang" tax return preparer about the tax consequences for your particular situation.

SALE OF HOME

The Tax Relief Act of 1997 made drastic changes to the laws on the sales of homes. Sales before May 7, 1997 must use the old laws for excluding gain or deferring profits. The old laws provided tax deferral by buying and moving into a new, more expensive home within 24 months of the sale date of the old home. The old laws also provided a profit exclusion (up to $125,000) under certain circumstances.

Under the new law an individual may exclude up to $250,000 in gain (a married couple may exclude $500,000) as long as two years have passed since the last exclusion. Sales made before August 5, 1997 may have the option to used the old exclusion and deferral rules which could be beneficial in some cases. Sales made after August 4, 1997 must follow the new law.

REMEMBER...

Because each person�s situation is different, we urge you to seek the advice of a tax specialist for more specific information on the tax tips discussed above. Taking full advantage of your age can mean keeping more of your retirement dollars in YOUR pocket.

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