Welcome to the topic 10 Tax Deductions for Seniors You Might Not Know About.
The Internal Revenue Service (IRS) provides a variety of tax incentives for seniors, like deductions and credits. You or a loved one may be qualified for even additional benefits at the state level.
The top ten senior tax deductions, as well as how to take advantage of them, are listed below.
1. Filing Threshold
The filing threshold is the amount of income earned before a tax return must be filed. Your filing threshold might be influenced by a variety of variables.
After 65, the filing threshold for ordinary taxpayers who are either employed or retired and receive a pension or Social Security income is substantially higher.
When a single filer’s income reaches $12,000, they must file a return. Seniors are exempt from filing a tax return unless their income surpasses $13,600. Unless their income reaches $26,600, married filers over 65 will not have to file a joint return.
If your only or main earning is Social Security or a pension, you may not need to submit a tax return at all.
2. Business and Hobby Deductions
When they retire, many seniors start consulting businesses. Others take up a new interest and eventually make enough money to sell on Etsy, at craft shows, or in local shops. This self-employment income is subject to income taxes.
When you own a business, though, you can take advantage of a variety of tax breaks. Almost all costs connected with running a business are included in these deductions, including:
- Expenses associated with advertising, including the cost of a website or business cards.
- Crafting tools and printing supplies, for example.
- Expenses for a home office
- Expenses incurred to hire a consultant or staff to assist you in running your company.
- Expenses associated with business education, including books on business ownership or the expenditure of attending a conference.
3. Social Security Tax Exemption
Earnings from Social Security are frequently excluded from federal income taxes. If your Social Security and other earnings total under $25,000 per year, you may be exempt from paying federal income taxes if you file as an individual.
You only have to pay income tax on half of your benefits if your Social Security and other incomes are around $25,000 and $34,000.
The threshold for paying any taxes on Social Security benefits for married couples filing jointly is $32,000. You only have to pay taxes on half of your benefits if you earn around $32,000 and $44,000 as a couple.
If an individual or a couple earns more than $50,000 per year, 85 percent of their benefits are taxed.
4. Standard Deductions
If your taxes are basic — you’re not a small business owner, you don’t give huge sums to charity, and you don’t itemize complex business deductions — you’re likely currently taking the standard deduction, which is a standardized tax deduction that reduces your taxable income.
The standard deduction rises as you get older. The exact amount is determined by your filing status and varies from year to year.
5. Medical Expense Deductions
Any medical expenses that exceed 10% of your adjusted gross income are allowable deductions.
You can deduct most professional medical bills, including payments paid to a doctor or dentist, even if you can’t deduct general health expenses like vitamins or health club dues. You can also take the following deductions:
- Costs of prescription drugs
- Expenses related to mental health, such as treatment fees
- Spectacles, dentures, and orthodontic appliances are all expensive.
- Expenses incurred as a result of a medical emergency, such as parking fees at the doctor’s office.
- Premiums for health insurance
- The price of senior care, such as in-home assistance or childcare.
6. Charitable Donations
Most charitable contributions, both for money and property, are tax-deductible. If you donate clothing to Goodwill, for instance, you can deduct the charity’s sale price rather than the original retail price. You can only deduct up to 50% of your adjusted gross income in general.
If you make a large donation to a charity or establish a foundation, consult a tax advisor to see how you can maximize your tax benefits. The way you structure your donation could affect your tax liability.
7. Elderly/Disabled Tax Credit
You can deduct money from the total amount owing to the IRS if you qualify for the tax credit for the elderly and disabled.
Deductions, on the other hand, enable you to subtract from your total taxable income. If the amount deducted is greater than what you owe the IRS, you may be eligible for a tax refund.
You must be above the age of 65 or permanently disabled to qualify for this credit. Your income cannot exceed specific thresholds, which vary from year to year.
The credit amount varies from year to year and is affected by filing status.
8. Retirement Plan Contributions
Many seniors continue to work after they have reached retirement age. Others continue to put money into their retirement accounts.
Contributions to retirement plans are frequently qualified for a saver’s credit, enabling you to deduct a portion of the contribution from your tax liability. A deduction, on the other hand, enables you to deduct from the amount of taxable income you claim.
You do not have to pay income taxes on your retirement benefits when you withdraw them. As a result, keep meticulous records of your retirement income.
9. State Senior Tax Exemptions
Seniors are subject to more than just federal taxes. It’s possible that you’ll have to file and pay state income taxes as well. State tax laws differ greatly, and the state you choose to live in might have a considerable impact on your tax liability.
A handful of jurisdictions provide special tax breaks for seniors, and several states do not tax Social Security wages.
10. Home Ownership Benefits
Seniors who still have a mortgage can deduct all mortgage interest paid on loans up to $750,000.
You don’t have to pay taxes on profits under $250,000 if you resided in your home for at least two of the preceding five years — or $500,000 if married taxpayers filing jointly.
Have any questions regarding the topic 10 Tax Deductions for Seniors You Might Not Know About? Feel Free to comment below.
Also Read: Too Busy for Your Taxes? Let Our Tax Experts Do It for You!
