Getting older has its perks, including tax breaks. Your income threshold for filing a tax return at all is higher, you get a bigger standard deduction, and you can defer or avoid taxes on more money. Below are the details of some tax breaks you’ll qualify for when you turn 65.
- You qualify for a larger standard deduction if you or your spouse is age 65 or older. The standard deduction for single seniors in 2021 is $1,700 higher than the deduction for people younger than 65 who file as individuals.
- You can earn a gross income of up to $14,050 before you’re required to file a tax return in 2021 — and that threshold may go up when filing in 2022. The tax-filing threshold is $27,400 for couples when both are age 65 and older. However, there may be reasons to file anyway, so check with a tax professional.
- In some states and local jurisdictions, you may qualify for property or school tax deferrals or exemptions if you earn below a certain income level. In Texas, for example, homeowners are eligible for a $10,000 homestead exemption on school taxes in addition to the $25,000 exemption for all homeowners. Check the specific rules in your area to claim a property tax exemption.
- You may be eligible for a tax credit meant to reduce seniors’ tax bills. Singles can claim the credit if their adjusted gross income is below $17,500 and they have nontaxable Social Security and pension income below $5,000. The value of the credit ranges from $3,750 to $7,500.
- Workers ages 50 and older can save an additional $1,000 in an IRA. This means that if you’re in the 24% tax bracket, maxing out on your IRA would save you $1,680 on your current tax bill. That’s $240 more than the maximum possible tax break of $1,440 for a younger retirement saver in the same tax bracket. You also may qualify for a saver’s credit if you’re a moderate- or low-income senior who contributes to a retirement account. (These are 2020 calculations. There are typically small annual adjustments.)
- Older workers with a 401(k) plan may be eligible to make catch-up contributions. For example, you can defer paying income tax on $6,500 more than younger workers if you contribute that amount to the plan. Income tax won’t be due on this money until it’s withdrawn from the account. (These are 2020 calculations.)
- If you withdraw money from a traditional retirement account, make a qualified charitable distribution and are 70 1/2 or older, you can transfer up to $100,000 and not owe income tax on the transaction — and it counts toward your required minimum distribution. There’s also an “above the line” deduction of up to $300 for cash donations to charity.
And there’s more…
This is just a brief overview to indicate the range of tax breaks for seniors. The actual amounts and calculations can change frequently and may be dependent on your particular situation, so be sure to consult with a tax professional about your tax status.
Count on our experienced team at Ericson, Scalise & Mangan, PC to provide you with sound guidance for your Estate Planning, Elder Law, Real Estate, Probate, Trust & Estate Administration, and other legal needs. For assistance, contact us today at (860) 229-0369, or email us at firstname.lastname@example.org.