Everyone wants to save money on their taxes, and older Americans are no exception. If you're age 50 or older, here are seven tax tips that could help you do just that.
1. Standard Deduction for Seniors
If you and/or your spouse are 65 years old or older and you do not itemize your deductions, you can take advantage of a higher standard deduction amount.
There is an additional increase in the standard deduction if either you or your spouse is blind.
2. Credit for the Elderly or Disabled
If you and/or your spouse are either 65 years or older--or under age 65 years old and are permanently and totally disabled--you may be able to take the Credit for Elderly or Disabled. The Credit is based on your age, filing status, and income and you must file using Form 1040 or Form 1040A to receive the Credit for the Elderly or Disabled. You cannot get the Credit for the Elderly or Disabled if you file using Form 1040EZ.
You may only take this credit if you meet the following requirements:
In 2016 your income on Form 1040 line 38 must be less than $17,500 ($20,000 if married filing jointly and only one spouse qualifies), $25,000 (married filing jointly and both qualify), or $12,500 (married filing separately and lived apart from your spouse for the entire year).
The non-taxable part of your Social Security or other nontaxable pensions, annuities or disability income is less than $5,000 (single, head of household, or qualifying widow/er with dependent child); $5,000 (married filing jointly and only one spouse qualifies); $7,500 (married filing jointly and both qualify); or $3,750 (married filing separately and lived apart from your spouse the entire year).
3. Medical and Dental Expenses Deduction
Starting in 2013, the amount of allowable medical expenses taxpayers must exceed before claiming medical expense deductions is 10 percent of adjusted gross income (AGI).
However, for tax years 2013 to 2016, the AGI threshold is still 7.5 percent of your AGI if you or your spouse is age 65 or older. You can only claim your medical and dental expenses if you itemize deductions on your federal tax return. You can't claim these expenses if you take the standard deduction. You can include only the expenses you paid in 2016. If you paid by check, the day you mailed or delivered the check is usually considered the date of payment.
4. Retirement account limits increase
Once you reach age 50, you are eligible to contribute (and defer paying tax on) up to $24,000 in 2017 (same as 2016).
The amount includes the additional $6,000 "catch up" contribution for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan.
5. Early Withdrawal penalty eliminated
If you withdraw money from an IRA account before age 59 1/2 you generally must pay a 10 percent penalty (there are exceptions--call for details); however, once you reach age 59 1/2, there is no longer a penalty for early withdrawal.
Furthermore, if you leave or are terminated from your job at age 55 or older (age 50 for public safety employees), you may withdraw money from a 401(k) without penalty--but you still have to pay tax on the additional income. To complicate matters, money withdrawn from an IRA is not exempt from the penalty.
6. Social Security Benefits
Americans can sign up for social security benefits as early as age 62--or wait to receive full benefits at age 66 or 67 (depending on your full retirement age). For some older Americans however, social security benefits may be taxable. How much of your income is taxed depends on the amount of your benefits plus any other income you receive.
Generally, the more income you have coming in, the more likely it is that a portion of your social security benefits will be taxed. Therefore, when preparing your return, it is advisable to be especially careful when calculating the taxable amount of your Social Security.
7. Higher Income Tax Filing Threshold
Taxpayers who are 65 and older are allowed an income of $1,550 more ($1,250 married filing jointly) in 2016 before they need to file an income tax return. In other words, older taxpayers age 65 and older with income of $11,850 ($23,100 married filing jointly) or less may not need to file a tax return.