Taxes obviously play an important part in planning the financial aspects of retirement. Keeping track of taxes owed and forms to be filed by certain dates is time-consuming. Federal, state, and local income taxes, school and real estate taxes, personal property, wage, and Social Security taxes, to say nothing of estate, inheritance, and gift taxes, must all be considered to insure that only the required minimum amount is paid. Fortunately, Federal and state income taxes on gross income are usually greatly reduced after retirement.
Federal income tax law allows you to double your exemptions after age 65 to $4000 for a married couple. You may also continue to reduce your taxable income by charitable contributions or other deductible expenses such as real estate and other taxes and loan interest. Under certain circumstances, no income taxes are due on the realized gain on the sale of a home up to $100,000.
Currently, all Social Security benefits are free of local, state, and federal income taxes, and probably will be free of most other taxes based on income. Company pensions are usually exempt from local and state income taxes, but are subject to Federal income tax. A company pension may be taxed, depending on the pension plan provisions and the way the money is paid.