Seniors who enjoy not having to go to work every day might not enjoy the fixed income that comes with retirement. The IRS is sympathetic and allows tax breaks and special tax credits for seniors. Our CPA Firm in Missouri has a few suggestions for ways you can be saving money on your taxes as you age.
If you and/or your spouse are 65 years old or older you can begin taking a higher standard deduction amount. There is an additional increase in the standard deduction if either you or your spouse is blind. If you’re single or you file as head of household, you can add an extra $1,600 to the standard deduction you’re otherwise eligible for as of 2018. If you’re married and you file a joint return, you can add $1,300 for each spouse who is age 65 or older.
Not that you cannot itemize your deductions if you take advantage of a standard deduction amount. Although you might have trouble deciding between the two, most aged taxpayers find that their standard deduction with the additional deduction for age ends up becoming a larger than any itemized expenses that could be claimed. Most already have their mortgages paid off and cannot take the itemized interest deduction.
Tax Credit for the Elderly & Disabled
If you end up owing the IRS, this credit can wipe out some, if not all, of your tax liability.
If you and/or 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.
If you’re married, you must file a joint married return with your spouse to claim the credit unless you didn’t live with your spouse at all during the tax year. If you qualify for head of household filing status, this allows you to claim the credit if your spouse didn’t live with you after June 30, although a multitude of other rules also apply to claim this status.
You may only take the credit if you meet the following requirements:
Your income on Form 1040 line 38 must be less than (based on your adjusted gross income)
- $17,500 or more if your filing status is single, head of household or qualifying widow or widower
- $20,000 or more if you’re married but only one of you otherwise qualifies for the credit
- $25,000 or more if you file a joint married return
- $12,500 or more if you file a separate married return but you lived apart from your spouse all year
The non-taxable part of your Social Security or other nontaxable pensions, annuities or disability income is
- $5,000 or more if your filing status is single, head of household or qualifying widow or widower
- $5,000 or more if you’re married but only one of you otherwise qualifies for the credit
- $7,500 or more if you file a joint married return
- $3,750 or more if you file a separate married return but you lived apart from your spouse all year
Social Security Income Benefits
Your Social Security benefits might or might not be considered taxable income. Finding out is sort of a complicated equation so the IRS offers an interactive tool to help you determine what is taxable and how much if so.
Retirement Account Limits Increase
Once you reach age 50, you are eligible to contribute (and defer paying tax on) up to $25,000 in 2019. The amount includes the additional $6,000 “catch up” contribution for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan.
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 (there are exceptions, please call the office for details); 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–but you still have to pay tax on the additional income. To complicate matters, money withdrawn from an IRA is not exempt from the penalty.
Don’t hesitate to call the office if you have any questions about these and other tax deductions and credits available for seniors. Enjoy the money you won’t have to give back to the IRS by utilizing accounting services in Missouri.