Retirement may have its benefits, but exemption from the IRS isnt one of them. Still, seniors actually have more options than most when it comes to making tax time less taxing. If youre 65 or older, these six tips will help minimize your stress and maximize your deductions come April 15.
- Determine how much of your Social Security benefits may be taxable. The more income you have, the more likely it is that a portion of your Social Security benefits will be taxed. To find out how much, you first need to calculate your base amount. Your base amount is equal to half your Social Security benefits plus your other income (including tax-exempt interest). If that amount exceeds the limits for your filing status, some portion of your benefits will be taxable. Calculating your base amount now means youll be less surprised – and less stressed – in the spring.
- File using a higher standard deduction. All taxpayers who are 65 and up can file using a higher standard deduction, provided that they dont itemize their deductions. If your spouse is a senior and doesnt itemize deductions, he or she is also entitled to a higher deduction. Just keep in mind that this deduction is slightly less per married taxpayer than it is for a single head of household. If you or your spouse is blind, you’re entitled to an even higher deduction.
- Find out if you qualify for the Making Work Pay Credit. If youre 65+ and work full- or part-time outside of your home, you may be eligible for the Making Work Pay Credit. To find out more, visit the IRSs web page on the Making Work Pay Credit or talk to your financial advisor.
- Find out if you qualify for the Credit for the Elderly or Disabled. If you or your spouse are at least 65 years old and considered permanently disabled, you may qualify for the Credit for the Elderly or Disabled. Keep in mind that you must meet certain income qualifications, which can be found on form 1040 or 1040A (known as the long form). You won’t find the credit on the “short form” (form 1040-EZ), so be sure to use the correct form if you think you may qualify.
- Claim dependents. Taking care of grandchildren and other dependents may entitle you to additional tax breaks. If you’re supporting your family, you may be entitled to claim some of them as dependents – even if one or more of them is not your child.
- Don’t forget about local and state taxes. Many states, such as New Jersey and Pennsylvania, offer additional tax credits, tax breaks, property tax and rental rebates, and tax freezes for seniors. In some cases, these tax breaks are refundable – which means you may be entitled to money back even if you don’t owe any taxes.
Remember to always consult a financial professional before making any changes to your portfolio. For more information, visit the IRSs web page for Seniors & Retirees.