Unlock the Hidden Benefits: 10 Tax Breaks Every Senior Citizen Should Know About
When you reach age 65, you’ll want to take advantage of every tax break available to you. Retirees often live on a fixed income, and the last thing you need is to overpay the IRS. When you understand how to harness eligible tax breaks, you can better plan your finances and make informed decisions about your expenses and future investments.
The following are the top senior tax breaks you may be missing out on:
1. Standard Deduction for Seniors
When you’re over 65, you’re eligible for a higher standard deduction than younger taxpayers. For instance, if you’re 64 and under, you will claim a standard deduction of $13,850 as an individual on your 2023 federal return. A single 65-year-old taxpayer is eligible for a standard deduction of $15,700. The difference of $1,850 reduces your overall tax liability.
2. Medical Expenses
Medical expenses add up quickly for seniors. As you age, you have an increased risk of diabetes, chronic obstructive pulmonary disease (COPD), osteoporosis, and heart disease. High healthcare bills can be a burden, but tax breaks will help alleviate some of these costs. If your medical expenses exceed a certain percentage of your adjusted gross income, you may deduct the excess from any taxable income on your return. Eligible expenses include doctor’s appointments, copays, prescription medications, lab work, and more. Seniors can deduct medical expenses that exceed 7.5% of their adjusted gross income, while the threshold for anyone under 65 is 10%.
3. Retirement Income
Making your retirement income last as a senior is a consistent worry for many. One tax exemption to consider applies to your Social Security benefits. If you file single and earn less than $25,000 annually, you don’t need to pay taxes on your Social Security benefits. If married, the threshold increases to $32,000 per year.
Legislation under the SECURE Act now allows seniors to continue contributing to Traditional IRAs and 401(k)s even after they reach the age of 70 ½. The contributions will increase retirement savings and lower taxable income.
Remember if you perform any side gigs, such as pet-sitting, tutoring, or participating in paid clinical studies, you may not need to report the income if it’s below the IRS threshold. The income minimum for seniors is higher than for those under 65 years old.
4. Home Modifications
Although not all home improvements lower your tax burden, there are specific types considered tax deductible. For instance, you may need to modify your home to accommodate your changing medical needs as you age. Examples include installing ramps or adding stability bars to the bathrooms. These modifications can be applied as part of your medical expense deduction.
Any energy-efficient improvements to a home are also frequently eligible for tax breaks. Examples of upgrades include solar panel installation, Energy Star appliance purchases, and geothermal heat pump installation.
5. Long-Term Care Insurance
Long-term care insurance alleviates costs associated with the assistance a senior may need to perform daily activities such as bathing, dressing, or medication management. Instead of paying out-of-pocket, you can pay premiums on a long-term care insurance plan. You may also deduct the premiums as part of your medical expenses. If you receive benefits from a long-term care insurance plan, you won’t have to pay taxes as long as claims are deemed medically necessary and certified by a healthcare professional.
6. Charitable Donations
Many older adults like to give back to causes close to their hearts. You may deduct any charitable donations made to non-profit organizations with tax-exempt status. To make the most out of charitable giving, save all donation receipts or acknowledgment letters from the organizations you supported over the year.
7. Property Taxes
Property taxes are a significant expense for homeowners that never goes away. Even if you own your home outright, you’re still responsible for property taxes annually. However, many areas have programs to help ease the burden on senior citizens. Some states have circuit breaker programs for those with low to moderate incomes. Under the program, property tax payments are capped based on a certain percentage of the taxpayer’s income.
8. Education Expenses
Education can continue well after retirement. If you or members of your family decide to take any courses, you may be eligible for tax breaks. The Lifetime Learning Credit is one example of a tax benefit that helps offset any educational costs. Also, if you withdrew money early from your retirement accounts for education expenses, you could be exempt from early withdrawal penalties.
9. Tax Credit for the Elderly and Disabled
Some seniors may be eligible for the Tax Credit for the Elderly and Disabled. This credit provides a dollar-for-dollar reduction in taxes owed and is based on income, filing status, and age. To qualify, you must be either over the age of 65 or permanently disabled. You must have also received taxable disability income for the tax filing year.
10. Additional Tax Breaks for Seniors
Seniors may also qualify for additional tax breaks along with the preceding benefits. For instance, the Earned Income Tax Credit (EITC) is available for families who make low to moderate incomes. Your tax credit amount changes based on if you have any dependents or are living with a disability.
Preparing your taxes can be stressful. Luckily, the IRS offers senior-specific resources to alleviate the headache of understanding the latest tax regulations. Programs like the Tax Counseling for the Elderly (TCE) and the Volunteer Income Tax Assistance (VITA) guide retirees on how to file and confirm they’re accessing as many deductions as possible.
Always consult with a tax professional to stay updated on any changes to laws that could affect your return. Maximizing tax breaks gives you a better opportunity to enjoy your retirement without worrying about your financial security.
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