Benjamin Franklin once quipped in a letter to French scientist Jean-Baptiste Le Roy that nothing is certain — except death and taxes.
And by the time you get to retirement, you’re probably already sick of paying taxes. After all, you spent your whole life helping out Uncle Sam and now that you’re on a fixed income, you’re probably frustrated you’re still expected to contribute.
The good news is that there are some simple tax return tweaks you could try out to save you thousands on your tax bill — which is a pretty big deal. Here are five of them worth trying.
One of the first tweaks is to be smart about withdrawing your required minimum distributions (RMDs). If you have a traditional 401(k) or IRA, the government penalizes you if you don’t start taking money out of them at 73.
There’s no avoiding RMDs if you have types of those accounts, but you can be strategic about it.
One option is to begin taking money out of your accounts when you’re eligible at 59 ½, which is well before you’re required to. This can allow you to withdraw funds slowly over time and reduce the size of your future RMDs. That’s helpful if your minimum distributions push you into a higher tax bracket or cause your Social Security to become partly taxable.
If you don’t need the money, you also can make a qualified charitable distribution, which is not taxable and allows you to support causes you care about.
The last thing you want is to give the IRS even more money than is already required. Unfortunately, that can happen if you get penalized for underpaying your taxes.
Since paying taxes is mandatory as you earn income in the U.S., you must either make quarterly estimated tax payments or withhold taxes from your Social Security and retirement account distributions. Unfortunately, it’s easy to underestimate the correct amount to send in or withdraw when you have income from different sources.
You can avoid this problem by paying the safe harbor amount each year, which is 90% of the taxes you owe for the current year. Calculating that can be a hassle, but you can pay either 100% of last year’s tax liability, or 110% if your adjusted gross income is above $75,000 for single tax filers or $150,000 for married joint filers.