Everyone wants to save money on their taxes, and retirees and older adults are no exception. If you’re 50 or older, here are six tax tips that could help you do just that.
Keep reading for info about standard deductions for seniors, credit for the elderly or disabled, retirement account increases, and more.
1. Standard Deduction for Seniors
If you and your spouse are 65 or older and do not itemize your deductions, you can take advantage of a higher standard deduction amount. There is an additional increase in the standard deduction if you (or your spouse) are blind.
2. Credit for the Elderly or Disabled
If you and your spouse are either 65 years or older – or under age 65 years old and are permanently and totally disabled – you may be able to take the Credit for Elderly or Disabled. The credit is based on your age, filing status, and income.
You may only take the credit if you meet the following requirements:
The amount on Form 1040 or 1040-SR, line 11 is less than $17,500 ($20,000 if married filing jointly and only one spouse qualifies), $25,000 (married filing jointly and both qualify), or $12,500 (married filing separately and lived apart from your spouse for the entire year).
The nontaxable part of your Social Security or other nontaxable pensions, annuities, or disability income is:
- Less than $5,000 (single, head of household, or qualifying widow/er with dependent child);
- $5,000 (married filing jointly and only one spouse qualifies);
- $7,500 (married filing jointly and both qualify); or
- $3,750 (married filing separately and lived apart from your spouse the entire year).
3. Retirement Account Limits Increase
Once you reach age 50, you are eligible to contribute (and defer paying tax on) up to $27,000 in 2022 ($30,000 in 2023). The amount includes the additional “catch up” contribution ($6,500 in 2022 and $7,500 in 2023) for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan.
4. Early Withdrawal Penalty Eliminated
If you withdraw money from an IRA account before age 59 1/2, you generally must pay a 10 percent penalty; however, once you reach age 59 1/2, there is no longer a penalty for early withdrawal. Furthermore, if you leave or are terminated from your job at age 55 or older (age 50 for public safety employees), you may withdraw money from a 401(k) without penalty. However, you still have to pay tax on the additional income. To complicate matters, money withdrawn from an IRA is not exempt from the penalty.
5. Social Security Benefits Generally Not Taxable
Americans can sign up for social security benefits as early as age 62 or wait to receive full benefits at age 66 or 67 (depending on your full retirement age). Generally, you pay federal income taxes on your Social Security income only if you have other substantial income in addition to your benefits.
Most retirees do not pay income tax on their social security benefits. Some, however, do. The more income you have coming in, the more likely it is that a portion of your social security benefits will be taxed. Therefore, when preparing your return, it is advisable to be especially careful when calculating the taxable amount of your Social Security.
6. Higher Income Tax Filing Threshold
Taxpayers who are 65 and older are allowed an income of $1,750 more ($2,800 married filing jointly and both spouses are 65 or older) before they need to file an income tax return. In other words, older taxpayers age 65 and older with an income of $14,700 ($28,700 married filing jointly – both spouses over age 65) or less may not need to file a tax return.
Don’t Miss Out
If you have any questions about these or other tax deductions and credits available for older Americans, please contact us at the office of Lahrmer & Company LLC at (216) 393-1954 or firstname.lastname@example.org