Taxes for Seniors

Blog Category: Finance

Unfortunately, no matter how old we get, we’ll always have to pay taxes. But there are certain differences in how we do our taxes as we age, so it’s important to pay attention to get the most bang for your buck. Here are some things for seniors to keep in mind when doing taxes.

Are Taxes Different for Seniors?

We never outgrow our taxes, but they do shift as we get older. If you’re 65 or older and have a gross income of $15,700 or higher, you have to file a tax return. The same is true if you’re married, filing jointly, both 65 or older, and have a gross income of $30,700. But if only one of you is 65 or older, your gross income has to be $29,200. There are many types of taxes older adults and retirees have to file:

  • Retirement Accounts: Retirement savings accounts like IRAs and 401(k)s have different tax treatments. If you withdraw from an account that allows it, that money won’t be taxed in retirement as long as you meet IRS requirements. If your plan is funded with pre-tax money, you’ll probably owe an income tax on withdrawals for the year you take them.
  • Pension Taxes: Pensions, like 401(k)s, are usually funded by pre-tax money, which means you’ll owe an income tax on withdrawals for the year you take them. It’s most likely your employer via that pension plan will withhold taxes since your pension payments are dispersed, mitigating your tax bill.
  • Social Security: If your annual income is Social Security payments, you don’t owe taxes and probably don’t need to file a tax return. But if you have a significant retirement income other than Social Security, you may have to pay an income tax on your Social Security benefits, the percentage of which depends on your combined income. Carefully complete the Social Security benefits worksheet if your provisional income is over $32,000 annually.

Tax Preparations

There are a few things to keep in mind when preparing your taxes as a senior:

  • Take Advantage of the Standard Deductions: Seniors utilizing the standard deduction get a bigger tax break and can file in this form if they don’t run a business, accept payments from Social Security, and take few or no payments from IRAs, pensions, and retirement savings.
  • Use Free Programs: The Volunteer Income Tax Assistance (VITA) program offers free tax help if you have a disability or make under $56,000 annually. The Tax Counseling for the Elderly (TCE) program provides free tax help for those at least 60 years of age with specialized information for older generations.
  • Take Advantage of the Tax Credit for the Elderly or the Disabled: You are eligible for this tax credit if you’re 65 and older, permanently disabled, or retired due to a medical condition.
  • Consider Your Deductibles: If you choose to itemize your deductibles, there are many to remember to include, such as employment costs (i.e., supplies, advertising, business education, etc.), medical expenses, and charitable donations.
  • Don’t Forget Your Medicare: Your income can affect your Medicare Part B and Part D premiums two years from now because of the Income-related Monthly Adjustment Amount (IRMAA), so be aware of this if your income exceeds certain thresholds. Self-employed retirees can deduct from these same premiums and the cost of supplemental Medicare (Medigap) policies or the cost of a Medicare Advantage plan.
  • Explore the Estate Tax: The Estate Tax is on your right to transfer property (cash, real estate, stocks, and other assets) transferred from the deceased to their heirs. This can be an important factor when thinking about the future, your loved ones, and your will.

Avoid Scams

Money and personal information are top things you want to keep protected, and they’re also the most vulnerable during tax season. Practice digital health and cyber security when dealing with suspicious emails, mail, and phone calls:

  • File your tax return as early as possible.
  • Don’t give your Social Security Number to anyone unless you know who you’re giving it to and it’s for good reason, so research your tax preparer thoroughly.
  • Mail your paper tax return directly from the post office instead of your home.
  • Use a secure internet connection when filing electronically.
  • Check your credit report at least once a year to make sure no one’s opened a new account under your name.
  • Contact from the IRS starts with a letter in the mail, and they will never ask for specific forms of payment like a gift card or debit card.

Prepare for the Future

You’ll also want to think ahead to next year’s tax season by organizing your physical and digital documents, so it’s easier to find them and know they’re in a safe location accessible only to you. Remember to keep documents like the following ready:

  • Investment profit and loss statements
  • Receipts for tax-deductible expenses or donations
  • The previous year’s tax returns
  • W-2s
  • 1099s

Looking for a greener future with your finances? Check out our free ebook, 6 Money Planning Tips for Your Senior Living!

At Life Enriching Communities (LEC), we’re committed to ensuring patrons feel well-equipped to plan their future and age how they wish. Explore more resources on senior living or contact us today to learn more about our legacy of services and programs that bring meaning and purpose to every stage of life.