U.S. tax laws are complicated no matter what age you are, but they can get even more confusing as you get older. Filing taxes can have a significant impact on retirement planning for seniors, so staying informed will help you make sense of the current laws, take advantage of tax credits and deductions for seniors, and avoid costly surprises.
To help you get started, here’s some guidance on how senior taxes differ from other age groups. Since some of these topics affect taxpayers differently, you should consider hiring a certified financial advisor for seniors to prepare your taxes.
Before you start filing your taxes, you may be wondering, “Do I need to file a tax return?” For taxpayers who are 65 or older by the end of 2023, the filing threshold — whether you need to file — has changed from last year. If you’re a single filer age 65 or older and have a gross income of $15,700 or higher, then you need to file a tax return. If you’re a married couple both ages 65 or older filing jointly with a combined income of $30,700 or higher, or if you’re a married couple with one spouse under the age of 65 filing jointly with a combined income of $29,200, you also must file.
However, if you live on Social Security benefits, and the amount you receive is less than $50,000 per year, then you don't include this in gross income, according to TurboTax. If this is the only income you receive, then your gross income equals zero, and you don't have to file a federal income tax return.
If you don’t itemize your deductions, you can get a higher standard deduction amount if you and/or your spouse are 65 years old or older. For single filers, the 2023 standard deduction is $15,600. (It’s only $13,850 for single filers under 65 years old.)
Many seniors are surprised to learn that Social Security benefits above specific amounts are subject to federal income taxes, says Harry Daniels, certified public accountant and certified financial planner at Duggan, Joiner & Company Certified Public Accountants. Social Security benefits could put you in a higher tax bracket and increase the amount of taxes you owe by thousands of dollars. The Internal Revenue Service (IRS) provides a Social Security benefits worksheet. And IRS Form 1040 and Form 1040A can help you calculate how much of your Social Security benefits are taxable.
At age 50, and especially after age 65, you may qualify for additional tax breaks, such as:
If you’re age 65 or older, you may qualify for this tax credit for seniors based on your age, filing status, and income. To receive the Credit for the Elderly or Disabled, you must first apply, then file using Form 1040 or Form 1040A. If you file using Form 1040EZ, you won’t qualify for the credit.
You can still make tax-deductible contributions to your retirement accounts even if you are retired or semi-retired. Adding to your retirement account lowers your taxable income for the year and helps you defer or avoid taxes on more money. If you’re over the age of 50, the maximum contributions, which are higher than those for younger age groups, are:
If you’re over age 70.5 and must withdraw required minimum distributions (RMD) from your IRA, you may directly transfer up to $100,000 per year to qualified charities. The IRA distribution is excluded from your taxable income and counts toward your RMD for the year, but it doesn’t count as a charitable contribution.
If you itemize your deductions, this lowers your adjusted gross income (AGI) and can impact other areas, such as medical expenses, passive losses, and taxable Social Security income. If you don’t itemize your deductions, you essentially receive the benefit of a charitable contribution to help offset your IRA distribution.
You can earn money from investments even after you retire, but interest, dividends, and capital gains are taxed at a lower rate than other income sources. If you took a loss when you sold your investments, you can also use that loss to reduce your taxable income — and carry it over from year to year.
Seniors often have higher medical expenses than other taxpayers, but some of these expenses may be tax deductible.
“If you itemize your deductions for a taxable year on Schedule A (Form 1040 or 1040-SR), Itemized Deductions, you may be able to deduct expenses you paid that year for medical and dental care for yourself, your spouse, and your dependents,” according to the IRS. You may deduct only the amount of your total medical expenses that exceed 7.5% of your adjusted gross income, the same amount as last year.
At the same time, the higher standard tax deduction for seniors may make this irrelevant to you because it may exceed your total itemized deductions.
You may think you can’t afford to hire professional advice, but a variety of reliable resources are available at no cost to you for tax preparation, filing, and planning.
Seniors age 60 or older can take advantage of Tax Counseling for the Elderly (TCE), an IRS-funded program administered by nonprofit organizations and operated by volunteer tax professionals.
Ideal for seniors who still earn taxable income below $60,000, Volunteer Income Tax Assistance (VITA) offers income tax return preparation and filing by volunteer tax professionals, as well as counseling on how to reduce your tax liability with tax credit and deductions. IRS-certified VITA volunteers are restricted from preparing certain tax forms, such as a Schedule C showing income losses, so if your situation is particularly complicated, the IRS recommends hiring a paid professional instead.
For taxpayers over the age of 50, the American Association of Retired People (AARP) Foundation offers tax prep and counsel through volunteer, IRS-certified tax professionals. You don’t have to be an AARP member to take advantage of this service.
TCE and VITA also help with state income tax for senior citizens, but additional resources in your local community may offer more specialized help with preparing and filing state taxes. Check with individual state tax bureaus or treasury departments, state bar associations, and local CPA or tax preparer associations to find help near you.
IRS Free File connects single filers and families with annual income of $73,000 or less to free filing software from select partners like TaxAct and FreeTaxUSA. Visit the Free File Software Offers page to see if you’re eligible.
Some local IRS offices have a Taxpayer Assistance Center (TAC). Check the IRS site to find a location near you and schedule an appointment.
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