The older we get, the more shocking it is to see how little money there is tucked away.
This is especially true considering most people don’t have a real plan, nor do they put enough money into retirement accounts. Deductions and exemptions indirectly reduce your household income tax, which affects how much tax you owe each year.
To hang onto your money as best as possible, take a look at these common tax exemptions for seniors.
Standard Deduction Exemption
All taxpayers can either itemize their personal deductions using Schedule A or take the standard deduction. If your personal deductions are less than the standard, then it’s a good idea to make the standard deduction exemption.
In 2018, the Tax Cuts and Jobs Act went into effect. This just about doubled the standard deduction, widening the net of taxpayers who would benefit from it.
If you’ll be 65 or older on December 31 of the income tax assessment year, you’re entitled to an even higher standard deduction. You can file this claim if you’re submitting a joint return with a spouse who is also over 65.
Medical/Dental Senior Citizen Benefits
According to the IRS, medical and dental expenses include:
- insurance premiums
- long-term care
- long-term care insurance
- other health-related programs
It would be best if you itemized medical expenses on Schedule A. Only expenses greater than 7.5 percent of your adjusted gross income as reported on the 1040 qualify.
Selling Your House and Property Tax Rebate
It’s not uncommon for people to sell their homes for smaller abodes after retiring. If you’ve been in one place for a long time, you should have a considerable amount of equity. That means you’ll earn a substantial profit on the sale, and you might not even have to pay taxes on it.
These are the qualifications for the primary residence capital gains and the property tax rebate:
- Your main abode can be a house, an apartment, a mobile home, a co-op, a houseboat, or a condo
- You must have lived in this home and owned it for over two years, though some exceptions apply
- You did not exclude gain from another home’s sale during those two years
In general, to determine your primary residence capital gains, subtract the following from the actual selling price:
- prepaid interest
- prorated property taxes
- property’s tax basis
- selling costs
The selling costs include improvements made to the property in the last 90 days to sell it, advertising costs, and broker’s fees.
Retirement is another time that people like to think about giving back to the community.
Making contributions to charity counts as an itemized deduction, but there are special limits.
If you donate anything besides cash, you can usually deduct the fair market value of the property. If the value of said property has increased, though, you will probably need to make a few adaptations. Donating vehicles limits the amount to gross proceeds.
Since charitable donations only deduct if you itemize them, you might want to bunch many of them into a single income tax assessment year. This is especially true if you have negative reports for your return, like Social Security garnishment or pension taxes.
Even if you’ve already retired, you can still make contributions to your retirement accounts. This might actually be the greatest of all senior citizen benefits since you likely need to live off this money.
The country’s tax laws allow people over 50 to contribute more to their retirement accounts compared to younger workers. For example, a married couple both over 50 could contribute up to $12,000 in one year, but a younger couple could only contribute $10,000.
Besides IRA accounts, you can also contribute to a Roth IRA. Though you pay taxes on those contributions, you don’t pay taxes on withdrawals. In other words, interest gained in a Roth IRA is tax-free. They don’t exist, just like pension taxes in 14 states.
If you own a business or otherwise want to start a business after retirement, you might qualify for claiming business expenses. The expenses must be reasonable and necessary to count. Some example expenses include:
- Money spent traveling for business
- Business equipment
- Office overhead
Social Security Income
Social Security could be taxable, but it might not. It’s a complicated question.
To figure it out, add all your sources of income, including any taxable retirement funds besides Social Security. Add half of what you received in Social Security benefits in the tax year.
If this adds up to less than $25,000 and you’re not married, your Social Security won’t be taxed. If you are married and filing jointly, then the limit is $32,000.
Keep in mind that if you’re in any debt, Social Security garnishment can prevent you from getting any amount.
Disabled Veteran Grants and Household Income Tax
One of the best tax exemptions for seniors is the credit for the elderly and disabled. If you owe the IRS, getting this credit could wipe away your full tax liability.
To qualify for these disabled veteran grants, you must be at least age 65 in the tax year.
As is clear to see, there are a wealth of options for tax deductions for seniors. In fact, these are just the most common; there are others that didn’t make the list. For personalized information, your local tax professional can look over your statements and give you detailed advice.