Retirees often assume they’ve mastered taxes after forty-plus years of filing returns. The errors that drain thousands from retirement accounts over years aren’t obvious. They’re small, structural mistakes that most people would fix immediately if they knew they were making them.
The 2025 tax year introduced updated deduction thresholds and temporary provisions that caught even experienced filers off guard. Retirees and taxpayers 65 and older face new rules, deductions, and changes. Getting it wrong doesn’t just mean a smaller refund. It can mean a larger Medicare premium, a higher effective tax rate on Social Security, or a penalty from the IRS that erases months of careful saving.
What follows are the ten retirement tax deductions and filing mistakes that tax professionals see most often, along with exactly what to do instead.
1. Missing the New Senior Bonus Deduction
A new deduction, available in addition to the existing additional standard deduction for seniors, was introduced for tax years 2025 through 2028. According to the IRS, taxpayers who are age 65 or older may be eligible to claim an additional $6,000 deduction per person, or $12,000 if married filing jointly and both spouses are eligible. The deduction phases out for taxpayers with modified adjusted gross income over $75,000 ($150,000 for joint filers).
The deduction is reduced by 6% of MAGI above the applicable threshold and is fully eliminated once MAGI reaches $175,000 for single filers ($250,000 for joint filers). If your modified adjusted gross income sits close to those thresholds, a large IRA withdrawal at the wrong time of year could shrink or eliminate the deduction entirely. Run the numbers before year-end, not in April.
2. Defaulting to Itemizing When the Standard Deduction Wins
The instinct to itemize runs deep in people who spent their working years deducting mortgage interest and state taxes. In retirement, that math often flips. When you file a tax return, you can choose between taking the standard deduction or itemizing deductions. If the amount you itemize doesn’t exceed the standard deduction, you lose money.
For the 2025 tax year, the base standard deduction is $15,750 for single filers and $31,500 for joint filers. Add the age-based additional deduction for filers 65 and older on top of that, and the bar for itemizing to beat the standard deduction becomes quite high. Many retirees who no longer carry a mortgage, no longer have large work-related expenses, and live in a lower-tax state will find that itemizing costs them money.
Run the comparison every single year. The conditions that made itemizing worth it at 55 may no longer apply at 68.
3. Getting the Capital Gains Basis Wrong
When you sell a stock for more than you bought it for, the transaction generates a capital gain. You calculate the gain by subtracting the purchase price from the sold price. You need the correct purchase price to avoid paying more in capital gains tax than necessary. If you sell a stock with a basis of $0, the entire sale price will be taxed as a capital gain.
This is a particular trap for retirees who have held stocks or mutual funds for decades. Brokerage firms were not required to track cost basis for their customers until 2011, which means older positions may show up in accounts with a basis of zero. That zero means the IRS treats the entire sale proceeds as profit, even if you bought the shares thirty years ago for close to their current value.
Before selling any long-held position, confirm the actual cost basis with your brokerage. If they don’t have it, track down old statements. The difference can be tens of thousands of dollars in unnecessary capital gains taxes.
4. Mishandling Required Minimum Distributions
Starting at age 73, retirees must take required minimum distributions (RMDs) from traditional IRAs and 401(k)s. According to the IRS, missing an RMD or withdrawing the wrong amount can trigger a penalty of up to 25%. Under the SECURE 2.0 Act, that penalty can drop to 10% if the mistake is corrected in a timely manner using IRS Form 5329. But neither penalty applies if you get it right the first time.
The common errors here come in two forms. The first is simply forgetting to take the distribution at all, particularly in the first year when retirees have the option to delay until April 1 of the following year. The IRS gives an extended deadline of April 1 to take your first RMD. However, all subsequent RMDs must be taken by December 31, meaning that if you delay until April, you’ll have to take two withdrawals in one year. That could push you into a higher tax bracket.
Large withdrawals can push other income into higher tax brackets, which affects not just your income tax but potentially your Medicare premiums and how much of your Social Security is taxed.
5. Not Knowing How Much of Your Social Security Is Taxable
Many retirees assume Social Security benefits aren’t taxable. Some of them are right, and some of them have an unexpected bill arriving in April. Social Security benefits are taxed at different thresholds based on filing status and combined income, which includes AGI, nontaxable interest, and half of Social Security income.
For taxpayers who are married filing jointly with combined income of $32,000 or less, Social Security benefits are not taxable. If combined income is between $32,001 and $44,000, benefits may be taxable up to 50%. For those whose combined income exceeds $44,000, benefits may be taxed at up to 85%.
The 2025 tax legislation does not eliminate taxes on Social Security benefits. The new law doesn’t change the Social Security benefit tax formula or the IRS combined income thresholds. The senior bonus deduction described above may reduce taxable income, but it is not a Social Security tax exemption. Retirees who draw down an IRA in the same year, sell investments, or pick up part-time income may be surprised to find a larger portion of their benefits becomes taxable as a result of those decisions made elsewhere in their finances.
6. Overlooking the Medical Expense Deduction
Retirees often have higher medical expenses than they did during their working years, and some of those costs may be deductible if you itemize. You can deduct qualified medical expenses that exceed 7.5% of your adjusted gross income. Retirees with significant out-of-pocket healthcare costs can genuinely exceed it, especially in years involving surgery, dental work, hearing aids, vision care, or new prescriptions.
Eligible medical expenses extend well beyond doctor visits and hospital bills. Long-term care insurance premiums (up to an age-based cap), prescription eyeglasses, medical equipment like CPAP machines, transportation to and from medical appointments, and home modifications made for medical reasons such as wheelchair ramps and grab bars can all count. Expenses paid on behalf of a spouse or dependent are includable too. According to AARP’s guide, most retirees don’t track these expenses systematically throughout the year, which is why they’re left estimating at tax time and usually undercount.
Keep a running log or folder, even a simple one, updated monthly. One hospital stay can generate enough deductible expense to make itemizing worth it for the entire year.
7. Skipping Qualified Charitable Distributions
Qualified charitable distributions (QCDs) allow taxpayers age 70½ or older to donate directly from an IRA to a charity, which can reduce taxable income without itemizing. This is one of the most underused tools in retirement tax planning, and its benefit is specifically valuable for retirees who take the standard deduction and therefore can’t deduct charitable contributions the usual way.
For retirees age 70½ or older, QCDs remain one of the most powerful tax-saving strategies. You can donate up to $111,000 per person directly from an IRA to charity, the distribution is excluded from your taxable income, and it can also count toward your required minimum distribution.
You must report this transaction on your tax return. As with other distributions from an IRA, you must report a QCD on line 4 of Form 1040. This oversight could increase your tax liabilities. The money must go directly from the IRA custodian to the charity, not through the account holder’s hands first.
8. Forgetting Home Improvement Costs When Selling
Retirees who sell a home they’ve owned for decades face a specific capital gains calculation that many get wrong. The IRS taxes the profit on a home sale, not the full sale price, and a significant number of sellers undercount what they’ve spent improving the property over the years.
The IRS taxes your profit, and you’re allowed to subtract money spent on home improvements over the years. Many people forget to deduct the costs of renovations and remodeling when calculating their profit from the sale of a home. Kitchen remodels, bathrooms, a new roof, central air conditioning – all those improvements count and should be tracked.
The standard capital gains exclusion is $250,000 for single filers and $500,000 for married couples filing jointly, which covers most home sales. But in markets where property values have appreciated sharply, some retirees find themselves above the exclusion. Every documented improvement raises the cost basis, which reduces the taxable gain. Keep receipts. Contractor invoices, permits, and records of appliance installations are all relevant.
9. Ignoring the SALT Deduction Cap Changes
The state and local tax (SALT) deduction cap has been a source of frustration for many homeowners, particularly those in high-tax states like California, New York, and New Jersey. According to the IRS, for tax years 2025 through 2029, new legislation temporarily raises the SALT cap to $40,000 for most filers. The limit will increase 1 percent each year through 2029, then drops back to $10,000 in 2030.
Because of the higher SALT deduction cap, tax professionals are expecting a significantly larger number of taxpayers to itemize their deductions this year. Retirees who previously couldn’t make itemizing work because the old $10,000 SALT cap ate up too much of their potential deductions may find the calculation has shifted. If you live in a state with meaningful property taxes and income taxes, it’s worth running the numbers again from scratch, rather than assuming last year’s answer still holds.
Note that the $40,000 cap is reduced by 30 cents for every dollar of MAGI over $500,000 ($250,000 for married people filing separately), so very high earners still face a reduced benefit.
10. Letting Medicare Surcharges Blindside You
This one isn’t technically a deduction mistake, but it’s a tax mistake in the fullest sense of the word, and it catches retirees off guard more reliably than almost anything else on this list. Medicare Part B and Part D premiums are not fixed. They are income-based, and the income used to calculate your premium isn’t from this year. It’s from two years ago.
IRMAA (Income-Related Monthly Adjustment Amount) catches many people off guard because it’s based on your tax returns from two years prior. So your 2026 income will determine if you pay an IRMAA surcharge in 2028, your 2027 income affects your IRMAA in 2029, and so on. According to the Journal of Accountancy, Medicare costs can be as high as $600 per month for retirees whose income, including RMDs, puts them in a higher Medicare bracket.
That means a large Roth conversion in 2025, an unexpected IRA withdrawal, or a one-time stock sale can trigger higher Medicare premiums in 2027, long after you’ve forgotten the transaction that caused them. Planning early and timing a Roth conversion properly can help avoid the monthly income-related premium adjustment amount for the life of the retiree, because distributions from Roth accounts do not count toward MAGI. This is the kind of tax planning that needs to happen before December 31st, not on April 14th.
What to Do With All of This
None of these are obscure loopholes. They’re standard provisions of the tax code that a meaningful portion of retirees miss every single year because the rules changed, because they assumed retirement would be simpler, or because the person who helped them file last year didn’t ask the right questions. Free programs like Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) offer help to low- to moderate-income taxpayers and taxpayers aged 60 or older to prepare and file their returns, including AARP Foundation Tax-Aide, which operates at thousands of locations in libraries, malls, banks, and community centers during filing season. These programs don’t charge a cent, and the volunteers who staff them specialize in exactly the kinds of retirement-specific issues covered here.
The broader pattern running through all ten of these mistakes is the same: retirement taxes reward people who pay attention throughout the year, not just in April. The decision to convert part of a traditional IRA to a Roth, the timing of a home sale, the month in which you take a large withdrawal, the documentation of every medical expense – all of these look like small administrative details in the moment. Over a twenty-year retirement, their cumulative effect on after-tax income is far from small.
Taxes in retirement aren’t a one-time puzzle you solve when you stop working. They’re a shifting set of conditions that respond to every financial decision you make. The rules that determined your tax picture at 67 may look nothing like what applies at 74. Checking the rules once, when you retired, is what turns manageable oversights into avoidable losses. Running the numbers every year, especially before any major financial event, is what doesn’t.
AI Disclaimer: This article was created with the assistance of AI tools and reviewed by a human editor.