Everyone wants to keep more of their hard-earned money. Luckily for seniors, many of whom are on a fixed income, there are several ways to save on taxes. With one out of three seniors aged 70-79 having saved less than $100,000 for retirement1, every deduction counts. Show
A good way to make sure you aren’t missing out on deductions is to get professional guidance.
There are free tax preparation services available to seniors through the IRS and AARP. Also, those with an adjusted gross income (AGI) of $73,000 or less per year can
file online for free using one of several tax software providers. These online providers and IRS-certified volunteers can answer questions about senior tax perks like the ones below.  When You Turn 50Larger IRA ContributionsThose age 50 or over can contribute $1,000 more to their IRA, making the maximum contribution for the year $7,0002. For a traditional IRA, these contributions act as a tax deduction. Also, once you reach 59½, you no longer have to pay an early withdrawal penalty for these funds. 401K Catch-up ContributionsThough not many take advantage of this perk, those over 50 can contribute an additional $6,500 to a 401(k) for 2022, bringing the total allowable contributions for the year to $27,000. Contributions to traditional 401K(k) plans are pre-tax dollars, lowering your taxable income while helping save for retirement. This catch-up contribution limit is also applicable for 403(b), SARSEP, and 457(b) plans. SIMPLE IRA or SIMPLE 401(k) Increased LimitsAdults age 50 or over participating in a SIMPLE IRA or SIMPLE 401(k) can bank an extra $3,000 into their account. This bumps the total annual limit from $14,000 to $17,000. These SIMPLE plans, formally known as Savings Incentive Match Plan for Employees, are offered by small business employers. When You Turn 55Higher HSA ContributionThose 55 and older can contribute $1,000 more to their Health Savings Account (HSA) than younger people as a “catch-up” opportunity. These contributions are tax-exempt and can be used for most medical expenses. There are no income qualifications for an HSA, though you must be enrolled in a high deductible health insurance plan (HDHP). When You Turn 65Higher Standard DeductionsThose aged 65 and over get their taxable incomes lowered with a larger standard deduction. This increase in deduction is based on your filing status and age. For example, the standard deduction for a person under 65 and filing single is $12,550. For individuals age 65 and over, the standard deduction jumps to $14,250. Since over 90 percent3 of people take the standard deduction instead of itemizing, this is a deduction almost everyone can take advantage of. Higher Tax Filing ThresholdThe minimum income that triggers a need to file a tax return at all is higher for those 65 and older. Your filing status, age at year-end, and gross income determine the income threshold. For example, a single person 65 or over would only need to file a return if their gross income was over $14,2504. For a married couple filing jointly (both aged 65 or older), the threshold is $27,800. Tax Credit for the Elderly or DisabledThis tax credit directly lowers the tax bill by between $3,750 and $7,500 for those who qualify. People 65 and over can be eligible if they meet income restrictions. For someone filing on their own, income must be less than $17,500 and total taxable social security benefits below $5,0005, but there are different limits for different filing statuses. People who have retired on permanent disability may also qualify for the tax credit. This tax credit is difficult to qualify for and can be confusing. To see if you are eligible, go to the IRS website and use their online tool. Property Tax ExemptionsTypically applied to those over 65, many states and cities give seniors special exemptions on the value of their homes. These exemptions vary depending on where you live (state and county), but the property needs to be your place of residence, and many places stipulate how long you need to have lived there. The exemption for those age 65 and older in Ohio, for example, is up to $25,000 of the home's market value, provided your annual income is less than $34,2006. Medical Expense DeductionsMost medical and dental expenses, including long-term care insurance, qualify for a deduction
if the total amount of those expenses is more than 7.5 percent of your adjusted gross income (AGI). You need to itemize your deductions rather than take the standard deduction for this to apply. Wondering which types of medical expenses you can deduct? Alison Flores, Principal Tax Research Analyst at H&R Block, tells us that “deductible medical expenses include amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease.” Did You Know: Medicare doesn't pay for dentures or hearing aids, but these costly purchases can be claimed as a deductible medical expense. Business DeductionsMany older adults leave company roles to work full or part-time for themselves. When running your own business there are a lot of tax deductions to take advantage of, including equipment, a home office, and
travel. If you spend more than you earn which can happen when first starting out, you can deduct that loss from your other income sources. Did You Know: If you're self-employed with a net profit for the year, you can claim your health insurance premiums such as Medicare, Medigap, and qualified long-term care insurance as a health insurance deduction. Qualified Charitable DistributionsAfter age 72 (70½ for those who reached this age before January 1, 2020), annual withdrawals are required from traditional retirement accounts. If you do not need the money but want to avoid a penalty fee, qualified charitable distributions (QCDs) are a viable solution. With QCDs, you can donate money directly to a charity from your IRA, avoiding income tax on that withdrawal. A single person can contribute up to $100,000 tax-free each year, and you can take advantage of this even if you are taking the standard deduction7. If you want to itemize your deductions, Alison Flores from H&R Block has a few tips. “If you make charitable donations, one consideration may be timing larger charitable donations with years you have larger medical expenses to increase the likelihood you will benefit from being able to itemize deductions,” Flores notes. “Ask your tax professional for assistance in determining whether you should itemize and how many medical expenses you'd need to reach the 7.5 percent AGI floor.” Charitable ContributionsGiving back has many benefits! If you don't itemize your taxes, charitable cash contributions up to $300 ($600 if your filing status is married filing jointly) can be claimed as a deduction. Charities must be paid to qualified organizations like churches, nonprofit schools and hospitals, and war veterans’ groups8. Mortgage InterestThe home mortgage interest paid on the first $750,000 ($375,000 if married filing separately) can be claimed. In order to benefit from this deduction, you'll need to itemize your tax return9. Sale of HomeAre you considering selling your home? Many older adults opt to downsize or move into a retirement community during their golden years. Taxpayers may qualify to exclude all (or part) of the sale's profit from their reported income. The maximum exclusion for single or married filing separately is $250,000. Married filing jointly or widowed is $500,00010. Many older adults living on a fixed income struggle with debt and tax bills. In the video below, SeniorLiving.org's Editor-in-Chief Jeff Hoyt details how seniors can legally avoid paying taxes to reduce expenses. Sources:
Do people over 65 get a larger standard deduction?Standard Deduction for Seniors – If you do not itemize your deductions, you can get a higher standard deduction amount if you and/or your spouse are 65 years old or older. You can get an even higher standard deduction amount if either you or your spouse is blind.
What is the 2022 standard deduction?The standard deduction is a specific dollar amount that reduces your taxable income. For the 2022 tax year, the standard deduction is $25,900 for joint filers, $19,400 for heads of household, and $12,950 for single filers and those married filing separately.
|
What is the standard tax deduction for seniors over 65
Related Posts
Copyright © 2024 ko.wiewird Inc.
