When workers retire, they look forward to paying less and fewer taxes from their earnings.
There are already many national laws that offer tax breaks, exemptions and deductions for those aged 65 and above. However, other juicy privileges are yet to be well known. This knowledge can benefit the retiree and elderly.
There are several tax breaks available for retirees and seniors. Unfortunately, these opportunities aren’t well exploited. As a retiree, you need to take advantage of these tax breaks. The greatest desire of the retiree is to ensure that retirement savings last as long as possible. Tax breaks designed for seniors are meant to ensure that they have more money and not less in their golden years.
As a retiree, you need to pay close attention to your taxes to know how to maximize opportunities available to people of your status. If you don’t know about these opportunities, you may lose the chance to save more of your money. Remember, with a fixed income, every penny counts.
Some of these tax breaks are available to you as soon as you turn 50 and not necessarily when you retire. But the juiciest parts do not kick in until you are over 65. At that time, using your retirement and health savings, you’re qualified for special tax breaks, bigger standard deductions, and you have the privilege of earning a lot more than required before paying taxes at all.
The IRS offers many such benefits to retirees and seniors. The good news is that there are even more tax breaks depending on your State of residence and local laws.
Let’s take a look at some of them with the hope that you’ll start taking advantage of them- if you’re not doing that already.
A Higher Standard Deduction
The standard deduction is already available regardless of your age for some categories of taxpayers. However, as a senior, you are eligible for more.
When you turn 65, one tax benefit available to you is a higher standard deduction if you don’t itemize your tax deductions.
When you’re 65, the standard rate of deduction of taxes is about $1,700 higher than those younger. In practical terms, if a 65-year-old gets a standard deduction of $15,000, a younger person would get a deduction of about $13,300. This can even increase by a further $1700 if you have a spouse who is also 65 or more. If you or your spouse have blindness or any other significant disability, you may be eligible for an even higher standard deduction.
This additional cash means taking the standard deduction is preferable to itemizing your deductions, although the actual amount would depend on your filing status and changes made each year.
You can only be young once. And you can only be old once! Take maximum advantage of your advanced age and enjoy higher standard deductions on your taxes.
Tax Credit For Low-Income or Disabled Seniors
Earned income credit is a refundable tax credit that is available to taxpayers with earned income. There are several tax credits that low-income households benefit from. An example is the earned income tax credit (EITC).
However, if you are above 65, you are eligible for some more form of tax credit. Retirees with a permanent disability, who do not earn above a certain threshold, can take advantage of such tax credits. Spouses whose gross joint earnings do not exceed $25,000 are eligible for tax credits of up to $7,000, although this value changes from one year to another. For individuals, your adjusted gross income must be below $17,500. The number of qualifying children also determines the amount.
There are already many deductions that the IRS allows you to make from your taxable earnings. But as an elderly with a low income, you are entitled to deduct more money from what you’re expected to pay in taxes. You are also qualified for a tax refund if, after your deductions, the amount is greater than your taxes.
Elders with disabilities are also qualified for tax credits, although younger persons are also qualified for tax breaks if they have similar disabilities.
Deduction for Medical Expenses
If you’ve had expensive medical expenses, you have the opportunity to get tax reliefs on that basis. If you are above 65, you are more likely to benefit from it.
All taxpayers can deduct their medical expenses from their taxes. Taxpayers can deduct only the amount of the total medical expenses that exceed 7.5% of their adjusted gross income. What this means is that if your earnings are grossly put at $25,000, any medical bills that are beyond $1,875 qualify you for deductions.
Although not all medical expenses qualify for these deductions, most visits to the hospital make a list. These include payments to doctors and other medical practitioners, including transportation costs.
The annual gross income threshold is also dependent on the State. This means some states may have lower points which would lead to even better savings.
Business and Hobby Deduction
When elders retire and decide to start a hobby that turns into a business or start a business outrightly, and they are making money, they pay income taxes.
However, you are eligible for some deductions as a retiree. The deductions are based on the costs and expenses required to keep the business running, including advertising.
Disabled Tax Credit
Permanent disability is what prevents a person from engaging in consistent employment. If you are elderly and disabled, you can receive tax credits which could reduce your taxes. However, your gross earnings must not exceed certain thresholds to claim the credit.
According to the IRS, “If you get disability payments, your payments may qualify as earned income when you claim the Earned Income Tax Credit (EITC)”. The disability earnings must be received under a former employer’s retirement plan to make it eligible for tax credits.
Those below 65 years of age are also eligible if they retire on permanent disability.
When you give to charity, you have an excellent opportunity to earn tax deductions. Gifts to charities have two advantages. One, it benefits humanity, and it also reduces tax obligations leading to more savings.
It should be noted that not all charitable donations qualify for tax deductions. To qualify, the donor must be eligible for tax exemption, and the charity must be in such causes as religious, scientific or literary. It could also involve animal safety, children protection and amateur sports development. You may need to contact relevant authorities to know the relevant charitable ventures that qualify for tax exemptions.
Your charitable donations can be deducted, and this includes money and property donations. When you make such donations, the value of the gift can be deducted, but your deductions can’t be more than 50% of the gross income.
Another way of maximizing tax benefits is setting up a foundation that focuses on the approved charities. Charitable donations help the retiree to keep more money.
Higher Tax-Filing Threshold
There’s a threshold to how much you earn before you start paying taxes. But for those who are older than 65 can earn higher income before filing taxes.
While younger workers must start paying taxes once they earn $12,350, retirees have to earn at least $14,000 before filing taxes.
For couples above 65, their earnings would have to cross the $27,400 threshold before taxes are required, while younger couples must start paying if their earnings cross $24,500. If only one partner is above 65, their earnings should be above $26,000 before they begin filing taxes.
Older people below the filing threshold can qualify for tax credits by filing a tax return for withheld income taxes.
If you’re older than 65, your earnings do not require as much taxes as younger workers, which is an opportunity to make more money.
Property Tax Breaks
Although this tax rule is dependent on state laws, people who earn a low income and are above 65 have several property tax exemptions. Tax breaks on properties vary from State to State.
Still, most elderly homeowners are eligible for a minimum of $25,000 tax exemption and a minimum of $10,000 homestead exemption for school district taxes. Some local areas offer even more exemptions for homeowners above 65.
After a life full of service to humanity and the country, elders and retirees have a wide range of tax exemptions they can benefit from.
Most of them are not well utilized, so we have highlighted the most popular ones. If properly explored, these tax deductions can go a long way in making the earnings of retirees even more long-lasting.
John E Chambers is an experienced financial advice expert. Born in Chicago, he has a master's in Industrial Finance, but he has spent decades offering investment advice to businesses and individuals alike. He is the founder of RetireeWorkforce.com and wants the website to be valuable for retirement advice. In addition, he writes articles that help users jump-start their retirement plans and choose the best investment options. If not pondering over stock market statistics or reading some magazines, you can find John spending time with his family. As an early retiree, John also offers unique insights into what post-retirement life is like.