Be a Tax Savvy Senior and Use These Tax Breaks Jun 28, 2020Views: 211
Our society teaches us to value older people and treat them with respect. This idea even filters into the tax system as there are special benefits that seniors can take advantage of to reduce their tax liability.
However, it takes a bit of expertise to apply the tax breaks you’re entitled to as a senior. Many of them are overlooked because people simply don’t know about them. Using a tax adviser’s services can help you put the tax breaks you’ve earned into practice.
Here are some important tax breaks all seniors should know about:
Increased standard deduction
This tax break is one that most people know about. Anyone who files taxes is entitled to a standard deduction. However, when you reach your mid-60s, the standard deduction rises. This increase can make a difference when you’re deciding whether to itemize your tax return or not.
You could save some money this way. Make sure you know what the standard deduction applicable to someone of your age and relationship status is before you complete your tax return.
Individual Retirement Accounts (IRAs) are the most common form of retirement savings. People typically stop contributing funds to an IRA when they stop earning an income upon retirement.
Contributions are tax-free, whereas withdrawals are not. If your spouse is still working and can fund contributions to the account, they can add up to $7,000 per annum to your IRA, as well as anything they choose to add to their own.
Find out about a Roth IRA, which taxes contributions before you make them and offers tax-free withdrawals once you’re retired. This can mean significant tax savings once you’re relying on the IRA for an income.
If you opt for MedicareAdvantagePlans2021, your Medicare expenses for Parts A and B are covered by a private company. These plans also include prescription drug coverage.
You can claim your Medicare Advantage premiums back on your tax return, provided itemize your expenses and do not settle for the standard deduction. Before you choose this route, you need to know your adjusted gross income and whether your medical expenses are worth more than 7.5% of it.
If they aren’t, itemizing won’t help you. However, if your income is small and you’ve had many medical expenses, it might be worthwhile to itemize and claim some of them as deductibles. Always keep supporting documentation in case your return is queried.
Tax credits for the elderly or disabled
The IRS offers a tax credit for the elderly, starting from the age of 65. The amount is not fixed and is calculated according to your income, filing status, and circumstances. You should approach the IRS for the relevant paperwork and submit it once completed. The forms will help you work out the value of your tax credit, although the IRS will confirm it.
A tax credit does not work in the same way as a tax refund. A tax credit only comes into play if you owe the IRS any money. The amount of the credit is deducted from the balance outstanding. However, if the balance is less than the credit, it will be adjusted to zero, although you will not be entitled to claim payment of the remainder of the credit.
Take advantage of not paying taxes on the profit from the sale of your property, provided you’ve lived in it for two of the last five years before you sold it. A single taxpayer can make $250,000 profit tax-free, whereas the amount for married couples filing together is $500,000.