Taxes can be an overwhelming topic. Most people are unaware of all the different tax credits and deductions that you can receive that are beneficial. Although there are many different types of tax deductions, there are some that benefit only seniors. If you can get a bigger refund, then why not take advantage? Most people aren’t aware of the money they may be missing out on. Did you know you can receive deductions on things like business and medical expenses, and charitable contributions? It is important to speak to a tax professional and become familiar with all the different ways you can get the most out of your return. Let’s review the top eight tax benefits for seniors, so you can be prepared when you consult with your tax advisor.
Increased Standard Deduction
Every taxpayer typically takes this deduction. If you are not a business owner, don’t donate to charity or itemize your personal deductions, then the standard deduction is usually what works best. This deduction lowers your taxable income. The Tax Cuts and Jobs Act is a tax reform law that took place in 2018 and just about doubled the standard deduction. When this happened, about 90% of all taxpayers, including seniors, became eligible for the standard deduction.
The standard deduction increases for those over the age of 65 and the amount depends on your filing status and changes each year. As of 2020, for a single taxpayer over the age of 65, the standard deduction was $1,650 and for joint filers, the standard deduction is $1,300.
Medical and Dental Expenses
For seniors, medical and dental are some of the largest expenses. The good news is that some of these expenses are deductible if you itemize your personal deductions. You are allowed to deduct any medical expenses that exceed 10% of your adjusted gross income. Even though you are not able to deduct fees paid to a doctor or dentist, you can deduct the following:
⦁ Prescription drug cost
⦁ Mental Health Expenses
⦁ Cost of glasses and dentures
⦁ Health insurance premiums
⦁ Nursing home care
If you are retired and someone who gives back to your community, you are in for a treat. Yes, giving to charity is considered a tax deduction. Under the CARES Act, you can deduct up to $300 in charitable contributions without itemizing. For the most part, you can deduct most charitable donations, including both money and property. You are allowed to deduct up to 50% of your adjusted gross income. It is advisable to speak with a tax professional so you can get the most out of your tax benefits.
Many seniors either start or continue to run a business after retirement. Whichever the case, having a business is a great way to get tax deductions. The expenses to run a business may allow you to be able to deduct the following:
⦁ Business Travel
⦁ Cost of equipment (computers, printing supplies… etc.)
⦁ Home office expenses
⦁ Marketing expenses
⦁ Education and training
If you end up with a loss from your business, you may be able to deduct it from other income that you earn, such as retirement income.
Retirement Plan Contributions
Whether you are retired or not, you can still make deductible contributions to retirement plans, such as IRAs. Retirement plans contributions are often eligible for a savers credit (nonrefundable tax credit available to eligible taxpayers) that allows you to deduct a portion of the contribution from the amount that is owed to the IRS. When it is time to withdraw your retirement benefits, you don’t have to pay income taxes, so contributing to your retirement plan may make sense.
Home Ownership Benefits
Your home can be an asset and a source of tax deductions: if you are a senior who is still paying a mortgage, you can deduct all mortgage interest on mortgages that do not exceed $750,000. If you are thinking about selling your home and relocating to another state, retirement community, or nursing care facility, then you may not have to pay taxes on any of your profits. As long as you lived in your home for at least two out of the last five years before selling, you do not have to pay taxes on profits less than $250,000, – or $500,000, for married taxpayers filing jointly.
Senior State Tax Exemptions
If you are considering moving to another state for retirement, knowing the state tax rules is a must. Most states have senior-friendly tax benefits. It is also common for many states not to tax on social security earnings.
Examples of state tax exemptions and benefits:
⦁ States such as Florida, New Hampshire, and Nevada do not have a state income tax.
⦁ Some states, like Tennessee, Arkansas, and Arizona, have no inheritance tax.
⦁ Mississippi’s state income tax is just 3%, with exemptions for Social Security, pensions, and retirement withdrawals.
⦁ Wyoming has no state income tax and low property taxes
Different Filing Thresholds
The filing threshold is the amount of income you must earn before you are required to file a tax return. For taxpayers who are employees or retired and drawing a pension or Social Security income after the age of 65, the filing threshold is much higher. If you are a single filer and under the age of 65, then you are required to file a return if your income exceeds $12,000. For anyone over the age of 65 the threshold is $13,600. If your only source of income is Social Security or a pension, this could mean you do not have to file a return at all based on the state you live in.
Tax season could be easier with an understanding of the different types of exemptions and credits you could be eligible for. When it comes time to file your taxes, consulting a tax professional and maintaining a journal of receipts and other important documents you may need during this time will help maximize your deductions and reduce your tax bill.