Cracking the senior tax savings code may not be as daunting as you might think. Keeping up with new tax changes is imperative if you want to save a bundle and get every deduction you are entitled to now that tax time is at hand. Hopefully, some of these tips can get you well on your path to cracking the senior tax savings code this year.
When you hit the age of 65, the IRS provides you with a reward in the form of a higher standard deduction. A single 64-year-old taxpayer, for example, can claim a standard deduction of $12,550 on his or her 2021 tax return. A single 65-year-old taxpayer, on the other hand, will receive a $14,250 standard reduction in 2021. The standard deduction will increase to $12,950 and $14,700 respectively in 2022.
The extra $1,700 increases the likelihood that you will take the standard deduction rather than itemize it on your 2021 tax return. If you do claim the standard deduction, this extra amount will save you more than $400 if you are in a 24% tax bracket.
Did you know that there is a special tax credit for low-income elderly and disabled taxpayers? To qualify you must meet 2 requirements. The first requirement is you have to be 65 or older, and the second is if you are younger than 65, then you had to have retired on total disability, and are receiving taxable disability income.
Once this has been established, your AGI must be less than $17,500 if you file your tax return as a single, head-of-household, or qualifying widow(er). If you're married and file a joint return, but only one of you is eligible for the credit, your AGI cannot exceed $20,000. If both spouses qualify, married couples filing jointly must have an AGI of less than $25,000. Finally, if you're married, filing a separate return, and living apart from your spouse for the entire year, your AGI must be less than $12,500.
The second qualifying requirement takes into account your non-taxable Social Security, pension, annuity, and disability income. The combined income of a single, head-of-household and qualifying widow(er) taxpayer must be less than $5,000. If only one spouse qualifies for the credit, the same income limit applies to joint filers. The income limit is $7,500 if both spouses on a joint return qualify for the credit. The limit is $3,750 for married people filing a separate return who did not live with their spouse during the year.
If in fact, you do qualify for this tax credit you could take an additional $750 if single, or $1,125 if married off your tax bill. You will need to file a Schedule R with your taxes for this credit.
If you become self-employed after leaving your job, you can deduct the premiums you pay for Medicare Part B and Part D, as well as the cost of supplemental Medicare (Medigap) policies or the cost of a Medicare Advantage plan. This deduction is available whether you itemize or not, and it is not subject to the 7.5 percent-of-AGI test that applies to itemized medical expenses.
Here is yet another way to save on your taxes at this stage in your life. If you're married and your spouse works, he or she can generally contribute up to $7,000 per year to a traditional or Roth IRA that you own. (We're assuming you're at least 50 years old because you're reading about retiree breaks.) This tax shelter remains available to you as long as your spouse has enough earned income to fund the contribution to your account (as well as any deposits to his or her own).
This is not an exhaustive list of all the savings you can look forward to. These are just some of the most overlooked strategies for lowering your taxes. Cracking the senior tax saving code can be successfully done if you know what to look for and who can help you. I will list some resources below where you can find more information.
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