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April 03, 2013

Tax Breaks for Older Adults: Investment Income

Wondering how to handle your investment income on your personal taxes this year? Investment income, returns received from your investment portfolio, falls under Earned Income Credit (EIC). EIC is a refundable tax credit for EIC is a refundable tax credit for people at least age 25 but under 65, or age 65 and older who have a qualifying child. According to Stephen Fishman, a full-time legal writer since 1983 and author of “Easy Ways to Lower Your Taxes,” the best way for older adults to earn money is in the form of interest, dividends, and capital gains from investments

“Dividends and capital gains are taxed at just 15 percent (5 percent for taxpayers in the lowest income tax bracket),” wrote Fishman in an article on Nolo.com. According to IRS Publication 554, under Rule 6, you cannot claim the EIC unless your investment income is $3,200 or less. 

For most, investment income is the total of the following amounts: 

  • Taxable interest
  • Tax-exempt interest
  • Dividend income
  • Capital gain net income 

Fees incurred for investment advice or accounting services are deductible to the extent they, along with your other itemized personal deductions, exceed 2 percent of your adjusted gross income. Examples include: 

  • Attorney and accounting fees
  • Safe deposit box fees (only if used to hold investment information)
  • Subscriptions to investment newsletters
  • Home computers used for investment purposes
  • Fees to financial planners
  • Fees you pay to a broker, bank, trustee (or similar agent) to collect investment income 

If seeking outside help to prepare the investment income portion of your taxes, be sure you have all the necessary details, advises AARP Tax Aide Joe Palmieri. 

“One thing you need to know is how much your stock or mutual fund cost when you bought it,” he says. Palmieri says he’s met with many widows whose spouses purchased the investment but the survivors are unaware of the investment’s original cost. 

You should receive the necessary filing forms for your investments in early February; however, forms in regards to trusts can arrive at any time. 

Want to learn more about the potential benefits for taxpayers 65+? Download our FREE guide “Tax Relief for Older Adults: A Basic Guide to Benefits” before you file this year!


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