If you’re about to embark on planning for your retirement, or you’re already there and want to find effective ways to reduce what you might owe in taxes, understanding what tax deductions for seniors exist and how to take advantage of them is powerful knowledge. No matter how many years you’ve been doing your own taxes, it doesn’t seem to get any less complicated or confusing. Few people enjoy doing it because often, the process is tedious, and the instructions can be complicated. It’s normal for people of all ages to become frustrated with filing their taxes. In fact, data suggests that nearly half of all Americans make mistakes while filing their taxes, and many of those mistakes are missing out on simple deductions that could save you money. So, is there a tax deduction for being over 65? The answer is yes! Significant savings are up for grabs for seniors and retirees who take advantage of every tax deduction for senior citizens that they qualify for.
In this guide, we’ll outline the tax deductions for seniors that you need to take advantage of once you’re over the age of 65. Additionally, if you stick around to the end of this article, we’ll let you know how you can find assistance, not just for tax season, but for planning out your retirement in general. Let’s jump right in to how you can save yourself some money in retirement with federal tax deductions for seniors.
Is there an additional tax deduction for seniors? The answer is yes. Once you are age 65, you’ll have a larger standard income tax deduction for seniors. That means that someone younger than 65 can claim $12,950 as their standard deduction in 2022, but if you’re 65 or older, you can claim $14,700 as an individual. That’s a $1,750 difference and it may be the difference you need to claim the standard deduction rather than itemize your deductions. Itemizing your deductions means finding receipts, declaring expenses, and defining what each deductible expense was for. It can be a time-consuming process. Taking the standard tax deduction for seniors over 65 is a quicker and easier way to file your taxes, especially if you’re not particularly tax savvy.
This standard deduction changes each year, so it’s worth checking up on the year for which you’re filing your taxes. For instance, in 2021, the standard deduction for individuals under 65 was $12,550, and the standard deduction for people 65 years of age or older was $14,250.
Taking advantage of your senior status can give you higher deductions as a couple, too. If you are a couple and one of you is 65 or older, your standard deduction increases by $1,400. If both of you are 65 or older, the standard deduction increases by $2,800. Your deductions can increase even more if either of you is blind.
Aside from the standard deduction, what additional tax deductions for retired seniors exist? There are numerous other federal deductions you can use as a senior or retiree. Let’s take a closer look at each of these federal tax deductions for senior citizens so you can find out which deductions apply to you.
When it comes to filing your income taxes, there is a threshold for each American. This filing threshold is the amount of income you have to earn before you’re required to file your income tax return. The filing threshold varies depending on certain factors. For instance, those Americans who make their income through self-employment have to file their taxes once they’ve earned $400 or more.
The filing threshold is relevant to seniors and retirees because as soon as you reach the age of 65, your filing threshold is significantly higher. Whether you’re employed or you’re pulling your income from retirement benefits, your filing threshold increases once you’re 65. An individual who is younger than 65 doesn’t have to file a tax return until their income reaches $12,400 and over. Once you reach the age of 65, your filing threshold increases to $14,050 as a single filer and $27,400 as a married couple over the age of 65. For some, this threshold may mean that they don’t have to file a return.
It’s important to note that if your only source of income is drawn from your Social Security benefits, you don't have to include it in your gross income. When Social Security is the only income a senior receives, their gross income is equal to zero and eliminates the need to file a tax return.
It’s not uncommon for many seniors to maintain employment long past the age of retirement. Some of these employed seniors continue to contribute to their retirement plans. Retirement account contributions can qualify for a credit that allows you to claim a partial deduction from any taxes you may owe. Not the same as a tax deduction for being over 65, this credit applies to monies owed to the IRA and not your taxable income.
If you are no longer working, there is still a workaround to continue contributing to your IRA. If your spouse is employed, they may contribute up to $7,000 per year to your IRA account. This contribution may be deducted from your combined taxable income. You won’t be able to contribute more than $13,000 when just one of you is 50 or older, and $14,000 if you are both over the age of 50.
As each year passes, an increasing number of seniors start home businesses to make ends meet. They may launch a consulting service to impart the wisdom they picked up during their career. Some may turn their many hobbies into small businesses, such as pottery, painting, editing, photography and more. Each day, the internet provides new ways for individuals to make money for themselves as well, including YouTube channels that pass on a lifetime of knowledge to younger generations or Etsy shops to sell their crafty creations for some extra spending money. But how does self-employment income affect your taxes in retirement? Are there small business deductions that seniors can take advantage of?
First, you must pay taxes on self-employment income once you have made $400. Once you’ve hit that threshold, hang on to the receipts for various things that you pay for to run your business because you can deduct numerous expenses, including:
There are numerous deductions that can be made when you have your own small business at any age, which means it pays to hang on to those receipts and keep close track of your business spending.
Collecting Social Security in retirement means you may not have to file your income taxes, but there are some limits to that. Social Security benefit payouts are commonly exempt from income taxes. In fact, if your income, including Social Security, totals less than $25,000 each year, you don’t have to file your income taxes at all. What’s more, you’ll only pay taxes on 50% of your annual income if it exceeds $25,000 up to $34,000.
When you file with your spouse, that limit rises to $32,000 before you have to file your taxes, and you’ll only pay taxes on half of your income when it exceeds $32,000 up to $44,000. When you earn beyond $44,000, you’ll pay taxes on 85% of your earnings.
Most states in the US have some form of a property tax deduction for people over 65. For instance, in Oklahoma, senior homeowners who are 65 or older may be eligible for an income tax credit when their income does not exceed $12,000 annually. In Texas, homeowners who are 65 or older may have $10,000 of their home’s assessed value exempt from school taxes. In Wisconsin, seniors who own a home qualify for property tax deferral loans. Every state offers something different for senior homeowners, so it pays to find out what tax credits, deductions, and deferrals you may be eligible for in your state.
As a senior, you may also qualify for tax-free profit from selling your home, but there are some rules that apply. The home you sell has to be your primary residence. You will also have had to live in the residence for at least two of the five years before you sell the property. Profits on a sale that fits these requirements will result in tax-free profits up to $250,000 for an individual and $500,000 for a married couple.
Additionally, you may also be able to sell your vacation property and have it qualify for the same tax-free profit rule. If you sell your primary residence and then live in your vacation home for at least two years, you can then sell the property and at least a portion of the profit will be tax-free.
Not all medical expenses are deductible, but some of your health-related costs are. If you are finding that you’re experiencing more health issues as you get older, these federal tax deductions for seniors can result in considerable savings. It’s great practice to keep track of all your spending but hang on, specifically, to medical invoices and receipts so you can take advantage of these deductions. When your medical expenses exceed 7.5% of your adjusted gross income, you can deduct them. Medical tax deductions for seniors include:
If you meet the spending threshold exceeding 7.5% of your adjusted gross income, you will also be able to deduct the premiums for Medicare Part B and D as well as Medicare Advantage and supplemental Medicare/Medigap policies. Once you are age 65 or older, you can withdraw from your HSA (Health Savings Account) tax-free, as well, to pay for your medical expenses.
One tax credit that is often overlooked is a special tax credit for low-income elderly or disabled people. In order to qualify, you will have to be at least age 65 at the end of the tax year or under age 65 on permanent disability with taxable disability income.
As an individual, your adjusted gross income should be less than $17,500 annually to qualify for this tax credit. When you file jointly with a spouse, that threshold then becomes $20,000 if only one of you meets the requirements for this tax credit. If both you and your spouse meet all the requirements for the elderly and disabled low-income tax credit, your adjusted gross income must not exceed $25,000. If you’re filing individually but you’re married and have lived separately from your spouse for the tax year in question, your income must not exceed $12,500 in order to qualify for this tax credit.
If you are collecting Social Security, as an individual filing your taxes, your combined total of non-taxable income from Social Security, pensions, annuities, and disability income must not exceed $5,000. If you’re filing jointly with a spouse, and only one of you qualifies for this tax credit, the limit is the same. If you both qualify, that threshold then becomes $7,500. For separated married couples, the limit will be $3,750.
This tax credit can save you up to $750 on your tax bill as an individual filer and $1,125 if you are married.
When you give money to charity, not only are you giving back and leaving a legacy to be proud of, but you can also qualify for tax deductions when you file your federal income tax. Once you are 70.5 years old, you will become eligible for a qualified charitable distribution (QCD). A QCD allows seniors to transfer up to $100,000 each, which totals $200,000 for married couples, from your IRA to a charity of your choice. That transfer is then excluded from your taxable income for the year. As an added bonus, a transfer to a charity like this will count as part of your required distribution for the year as well.
If this is something you’re interested in doing, it’s always best to seek the advice of a tax professional or a financial advisor to ensure it’s being done correctly and you are able to take advantage of deductions as a result of your charitable contributions.
Seniors in the United States are free to pass on up to $12 million to their heirs before there is a federal estate tax, as of 2022. With the annual gift tax exclusion, you may also give up to $16,000 each year without having to pay a gift tax. If you have a spouse, they can give the same amount, doubling your tax-free gifts. This amount applies to each family member to whom you’re gifting the money. That means that if you have two kids, and one grandchild, you can give each of them $16,000 tax free, totalling $48,000. If you have a spouse, you can give them each $32,000 totaling $96,000.
Each state may also have tax deductions that benefit seniors. For instance, in South Carolina, all Social Security benefits and up to $10,000 in retirement income are exempt from taxes. Florida and Nevada have no income tax at all, while in Arizona, there is no tax on estates.
It is worth your time to reach out to a tax professional in your state to find out what exemptions and deductions you may qualify for as you file your income tax return.
Our content is created for educational purposes only. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Everdays encourages individuals to seek advice from their own investment or tax advisor or legal counsel.