Medical Expenses

• Medical expenses for seniors can be substantial. This is why a medical expense deduction should be taken whenever possible. A medical expense deduction allows you to deduct medical expenses you incur during the year. Medicare premiums, long-term care premiums, prescription drug costs and other out-of-pocket insurance expenses are all deductible, providing you with additional money to spend in your retirement.
  
  

Credit for the Elderly or Disabled

• The IRS allows you a special tax credit for being a senior. This tax credit is only applied when you and/or your spouse is at least age 65 or you are under 65 but totally and permanently disabled. You must also fall within the income thresholds established by the IRS. As of 2010, your income on your IRS Form 1040, Line 38, must be less than $17,500 if you're single, $20,000 if you're married filing jointly but only one spouse qualifies for the credit, $25,000 if you both qualify or $12,500 if you are married but filing separately while living away from your spouse for the entire year. Your non-taxable portion of your Social Security income or other non-taxable income must be less than $5,000, $7,500 if you're married filing jointly and you both qualify for the credit, or $3,750 if you're filing separately and living apart for the entire year.
  
  

Retirement Plan Contributions

• You may continue contributing to your IRA even when you're retired. As long as you're under age 70 1/2, you may contribute up to the IRS's maximum contribution limit. Most likely, this will be $6,000, assuming you retired after age 50. Your retirement contribution limits are per spouse. So, even if you file taxes jointly, you and your spouse can deduct a total of $12,000 per year from your income.
  
  

Standard Deduction

• Your standard deduction increases when you retire. As of 2010, the IRS allows you to take an additional deduction of $1,400 in addition to the deduction allowed to everyone else if you're single or filing as head of household. If you're married, you and your spouse both get an additional deduction of $1,100 on top of the standard deduction given to all taxpayers.