If you’re 50 or older, you have many great options for reducing your federal tax bill
For many seniors, enjoying your golden years in comfort means continually finding better, more effective ways to manage your budget and maximize how far your money will go.
And by knowing which tax breaks you’re eligible for, you’re in a much better position to lower your federal tax burden and get the most out of your retirement dollar.
Here’s a look at six popular tax credits and deductions for seniors and retirees this tax season.
1. Bigger standard deduction
2017’s Tax Cuts and Jobs Act (TCJA) nearly doubled the standard deduction, leaving many Americans little-to-no incentive to itemize at tax time. But for those 65 and older, that deduction climbs up even higher, making it even less beneficial for many seniors to list and claim expenses on this year’s return.
Once you turn 65, the IRS increases your standard deduction (if you file Single) from $12,200 to $13,850, a $1,650 bump taking a potentially huge chunk out of your 2019 tax burden. And if you’re married and you’re both over 65, that increase amounts to $2,600 ($1,300 per spouse), a sizable tax advantage that can really save you money.
What’s more: the standard deduction for seniors over 65 is even larger next year, growing to $14,050 for single filers in 2020.
2. Charitable deductions
Giving to charity can pay off no matter what age you are. And for retirees and seniors looking to minimize their tax bill, charitable contributions can provide a powerful opportunity to reduce your taxable income and take the bite out of this year’s return.
If you donated cash to qualified organizations during the 2019 tax year, you can itemize and deduct those contributions up to 60% of your Adjusted Gross Income (AGI). When it comes to donated property other than cash, you can usually deduct the fair market value of those contributions from your 2019 federal income tax return.
Note: Federal tax deductions for donations like cars and boats are generally limited to the proceeds from their sale by the charity itself. This applies when the value you claimed is $500 or more.
3. Tax Credit for the Elderly
Among the most popular tax credits for seniors and retirees is the Tax Credit for the Elderly or Disabled. Ranging between $3,750 and $7,500 in value, this credit can be great for wiping some or all your 2019 tax bill.
To qualify for the Tax Credit for the Elderly, you must be:
- 65 or older, or
- Retired on permanent and total disability and the recipient of taxable disability income in 2019
Additionally, your 2019 AGI or total nontaxable Social Security and disability income must fall under certain limits, including:
- $12,500 if you’re married, file a separate return and lived apart from your spouse throughout the year
- $17,500 if you file as single, head of household or qualifying widow(er)
- $20,000 if you are married but only one spouse is eligible for the credit
- $25,000 when you file a joint return
As tax credits for seniors go, the Tax Credit for the Elderly or Disabled offers one of the best opportunities to limit your taxes and keep more of your money.
4. Medical expenses
Medical and dental care costs often make up one of the biggest expenses for seniors and retirees. Luckily, many of those costs may be tax deductible on your 2019 return, including what you pay for health insurance premiums, long-term care insurance, prescription drugs and more.
If you’re 65 or older and itemize your return, expenses ranging from hearing aids and wheelchairs to in-home nursing care and prescription supplements may be used to reduce your taxes once they exceed 7.5% of your Adjusted Gross Income. So, if your AGI totaled $40,000 in 2019, all eligible healthcare costs paid beyond the first $3,000 can be deducted from your taxes—a potentially huge savings on this year’s tax bill.
Depending on your income, costs and tax situation, medical expenses may be one of those tax deductions for seniors you can’t afford to overlook before filing your return.
5. Small Business Expenses
If you’re retired or semi-retired and still run your own business, deducting business expenses can be a good way to lower your taxes and optimize your 2019 return.
Whether you’re running the flower shop down the street or working as a part-time consultant for a former employer, it costs money to operate your business. And what you pay for things like business travel, equipment and home office utilities can be turned into tax deductions that reduce your taxable business income and tax burden at the end of the year.
What’s more: if you’ve lost money from your business in 2019, you may be able to deduct that loss for other income, such as retirement income (your local tax pro can help you determine if this is possible).
6. Low-income return exemption
Though not exactly a tax credit or deduction for seniors, the low-income return exemption can provide a bit of relief for those in low-income households, eliminating a potential source of stress and financial strain for many 65 and older.
By law, married couples who meet the age threshold and make under $27,000 (not including Social Security) aren’t required to file a federal income tax return, while seniors with one spouse younger than 65 don’t have to file when that total is under $25,700. Single individuals over 65 with an income under $13,850 also qualify for the low-income return exemption.
Need help finding the best tax credits and deductions for seniors?
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At Liberty Tax®, we’re committed to helping you find the tax credits, deductions and solutions you need to minimize your tax bill and maximize your retirement budget.
Our tax prep pros dig deep to identify the tax breaks that provide the most benefit for your unique tax situation and put you in the best position for success.
Learn more by visiting your local Liberty Tax® location today.