Ways for seniors to save on their taxes

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    Retirement has a lot to offer, which explains why so many taxpayers diligently save for it over the course of their lifetimes. There are those perks that money really can’t buy, like your grandchildren, and the things you’ve been saving for: travel, not going to work every day, or even just sleeping in late on a Monday morning.

    The Internal Revenue Service (IRS) gets it. The U.S. tax code offers quite a few tax breaks exclusively to older adults, including a special tax credit just for seniors.

    A Larger Standard Deduction

    You won't have to pay taxes on as much of your income, because the IRS allows you to begin taking an additional standard deduction when you turn age 65.

    For tax year 2021—the tax return you file in 2022—you can add an extra $1,700 to the standard deduction you’re otherwise eligible for, as long you are unmarried and not a surviving spouse. You can add $1,350 for each spouse who is age 65 or older if you’re married and file a joint return. Those numbers increase to $1,750 and $1,400 in tax year 2022.

    To qualify for this deduction, you must turn 65 by January 1 of the following tax year.

    Standard Deduction or Itemized Deductions—Which Is Better?

    You have a choice between claiming the standard deduction instead of itemizing your deductions, but you can't do both. And the Tax Cuts and Jobs Act (TCJA) pretty much doubled the basic standard deductions for all filing statuses—the deduction you can claim before you claim the extra bonus deduction for being age 65 or older, making it a somewhat difficult decision.

    As of tax year 2021, the base standard deductions before the bonus add-on for seniors are:

    • $25,100 for married taxpayers who file jointly, and qualifying widow(er)s
    • $18,800 for heads of household
    • $12,550 for single taxpayers and married taxpayers who file separately

    The standard deductions after the bonus are:

    • $27,800 for married taxpayers who file jointly, and qualifying widow(er)s
    • $20,050 for heads of household
    • $14,250 for single taxpayers, and married taxpayers who file separately

    Many older taxpayers may find that their standard deduction plus the extra standard deduction for age works out to be more than any itemized expenses they can claim, particularly if their mortgages have been paid off and they don't have that itemized interest deduction any longer. But you could gain a larger deduction for itemizing if you still have a mortgage and factor in things like property taxes , medical bills, charitable donations, and any other deductible expenses you might have.

    A Higher Tax Filing Threshold

    Your threshold for even having to file a tax return in the first place is also higher if you’re age 65 or older, because the filing threshold generally equals the standard deduction you’re entitled to claim.

    Most single taxpayers must file tax returns when their earnings reach $12,550 in the 2021 tax year (the amount of the standard deduction), but your deduction can go up to $14,250 if you’re age 65 or older (the standard deduction plus the additional $1,700). You can jointly earn up to $26,450 if you or your spouse is 65 or older, and you file a joint return. If you’re both 65 or older, your deduction could be $27,800.

    Taxable Social Security Income

    Your Social Security benefits might or might not be taxable income. It depends on your overall earnings.

    Add up your income from all sources, including taxable retirement funds other than Social Security and what would normally be tax-exempt interest. Then add half of what you collected in Social Security benefits during the course of the tax year. The Social Security Administration (SSA) should send you Form SSA-1099 around the first day of the new year, showing you exactly how much you received.

    You don’t have to include any of your Social Security as taxable income if the total of all your other income and half your Social Security is less than $25,000 and you’re single, a head of household, or a qualifying widow or widower. That increases to $32,000 if you’re married and filing a joint return, and it drops to $0 if you file a separate return after living with your spouse at any point during the tax year.

    If you fall outside of these income levels, up to 85% of what you collect in Social Security might be taxable.

    The IRS offers an interactive tool to help you determine whether any of your Social Security is taxable and, if so, how much.

    Tax Credits for Older Adults

    One of the most significant tax breaks available to older adults is the tax credit for the elderly and disabled . This tax credit can wipe out some, if not all, of your tax liability if you end up owing the IRS.

    You must be age 65 or older as of the last day of the tax year to qualify. That January 1 rule applies here, too—you’re considered to be age 65 at the end of the tax year if you were born on the first day of the ensuing year. You must be a U.S. citizen or a resident alien, but if you’re a non-resident alien, you might qualify if you’re married to a U.S. citizen or a resident alien.

    In general, you must file a joint married return with your spouse to claim the credit if you’re married, unless you didn’t live with your spouse at all during the tax year. And you won’t be eligible for this credit if you earn more than the following:

    • $17,500 or more and your filing status is single, head of household, or a qualifying widow or widower
    • $20,000 or more and you’re married, but only one of you otherwise qualifies for the credit
    • $25,000 or more, and you file a joint married return
    • $12,500 or more, and you file a separate married return, but you lived apart from your spouse all year

    These numbers are based on your adjusted gross income (AGI), not your total income. Your AGI is arrived at after taking certain deductions, also known as "adjustments to income," on Schedule 1.

    Limits also apply to the nontaxable portions of your Social Security benefits, as well as to nontaxable portions of any pensions, annuities, or disability income you might have. Those limits are as follows:

    • $5,000 or more, and your filing status is single, head of household, or qualifying widow or widower
    • $5,000 or more, and you’re married, but only one of you otherwise qualifies for the credit
    • $7,500 or more, and you file a joint married return
    • $3,750 or more and you file a separate married return, but you lived apart from your spouse all year

    Frequently Asked Questions (FAQs)

    Which states provide the best tax breaks for retirees?

    Many states exempt Social Security income from taxation, and some states don't tax income at all. The best states to retire for tax reasons are currently Alabama, Hawaii, Illinois, Mississippi, and Pennsylvania.

    How do you earn tax breaks in your retirement years?

    Once you turn 65, you automatically have a larger standard deduction available, so be sure you're taking advantage of that if you're not itemizing deductions. When you reach age 70 and a half, you can also reduce your tax liability by giving some of your IRA distributions directly to a charity. This counts toward your required minimum distributions. Talk to your financial advisor about other ways to lower your taxes in retirement.

    Do you have to pay income tax after age 70?

    A portion of your income from Social Security, pensions, disability, and annuities is nontaxable, but if you make more than the limits, you will still have to pay some taxes after age 70.

    Do seniors still get an extra tax deduction?
    Increased Standard Deduction When you're over 65, the standard deduction increases. The specific amount depends on your filing status and changes each year. For the 2021 tax year, seniors get a tax deduction of $14,250 (this increases in 2022 to $14,700). more
    Should senior citizens marry?
    Older couples tend to have much more experience, understand the challenges that health issues can pose and have a handle on patience and compassion. Tax Benefits: Marriage comes with hefty financial and tax benefits, and married spouses can receive an unlimited amount of assets without needing to pay estate taxes. more
    Can caregivers deduct mileage?
    Yes, but only for the mileage and expenses used in the scope of your job. Commuting miles directly from your home to the main office, or from the main office to your home are not deductible. more
    Who can deduct TDS?
    Any person who is responsible for making payment of nature covered under the TDS provisions of Income Tax Act, 1961 shall be liable to deduct tax at source. But no TDS has to deducted if a person making the payment is an individual or HUF whose books are not required to be audited. more
    What is senior analyst?
    Senior business analysts are to perform the planning and estimation for the requirements specific tasks/activities in a project. They put in efforts to understand the overall purpose and size of the project, stakeholders to work with, methodology. more
    What is senior ID?
    One such initiative is the Senior Citizen ID Card which provides unique benefits to citizens above the age of 60. more
    Is it better to pay extra principal or extra payment?
    Making your normal monthly payments will pay down, or amortize, your loan. However, if it fits within your budget, paying extra toward your principal can be a great way to lessen the time it takes to repay your fixed-rate loan and the amount of interest you'll pay. Related topics: Homeownership. more
    Is extra thumb lucky?
    According to oceanography, having two thumbs in the hand is considered very auspicious. Those who have two thumbs in their hands, they are very rich in luck. more
    How can a senior make extra money?
    5 Ways Retirees Can Earn Money Without Leaving Home
    • Share knowledge online and tutor others.
    • Freelance in your professional field.
    • Look for remote job opportunities.
    • Rent out space in your home or garage.
    • Tap into your home's equity.
    more
    What is Pru extra?
    PRUExtra. A supplementary plan that gives you that little added extra. Complement your PRUShield plan to enjoy even greater coverage. more
    What is senior underwriter?
    What Do Senior Underwriters Do? Senior underwriters analyze new loan applications to determine whether an applicant should be administered a loan. They may analyze the ability to pay, credit score, and how much is being requested, and the submitted information should be verified during this process. more

    Source: www.thebalance.com

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