It’s Tax Time!
10 Tax Deductions & Credits You Should Know About.
The IRS offers several tax deductions and credits specifically for older adults, and we’ve compiled the top 10 here. Please consult your tax advisor for more details.
- Increased Standard Deduction
If your taxes are relatively simple, then you probably already take a standard deduction. When you’re over 65, the standard deduction increases. The increase depends on your filing status and changes each year, but it can range from $1,350 to $2,700.
- Different Filing Threshold
The filing threshold is the amount of income you must earn before being required to file a return. If you are married, filing jointly and you are both 65 or older, you must file a return if your combined gross income is $27,700 or more. If your spouse is under 65 years old, then the threshold amount decreases to $26,500. You may not have to file a return if your sole or primary income source is Social Security or a pension.
- Social Security Tax Exemption
Social Security earnings are often exempt from federal income taxes and you may not have to pay any taxes if you earn less than $25,000 per year as an individual filer or $32,000 as a joint filer. If your earnings are greater than these amounts, you will be taxed on a percentage of your benefit income.
- Business and Hobby Deduction
Many seniors start businesses when they retire—perhaps as consultants or through a new hobby. As a business owner, you’re eligible for a wide range of deductions which include virtually all costs associated with running the business, i.e. advertising expenses, tools and supplies, payments made to consultants or employees, and business education expenses.
- Medical Expense Deduction
You’re allowed to deduct any medical expenses that exceed 10 percent of your adjusted gross income. Although you can’t deduct general health expenses, like vitamins or health club dues, you can deduct fees paid to a medical specialist, prescription drug costs, mental health expenses, the costs of glasses, dentures, and orthodontic appliances, expenses incurred because of medical need, (i.e. parking fees paid at the doctor), health insurance premiums and the costs of senior care (in-home help or adult daycare).
- Elderly/Disabled Tax Credit
To be eligible for this credit, you must either be over the age of 65 or permanently disabled. Your income must not exceed certain levels, and those levels change from year to year. The amount of the credit also varies from year to year and changes with filing status.
- Charitable Deductions
In general, you can only deduct most charitable donations up to 50 percent of your adjusted gross income. If you donate significant amounts to charity or set up a foundation, talk to a tax planner about how to maximize your tax benefits, because how you structure your giving may change your tax liability.
- Retirement Plan Contribution Benefits
Retirement plan contributions are often eligible for a saver’s credit that allows you to deduct a portion of the contribution from the amount owed to the IRS. You do not have to pay income taxes on withdrawn retirement benefits.
- State Senior Tax Exemptions
State tax rules vary quite, and the state in which you choose to live can significantly affect your tax liability. Several states offer specific tax benefits to seniors, and it’s common for states not to tax Social Security earnings.
- Home Ownership Benefits
Seniors can deduct all mortgage interest on mortgages that do not exceed $750,000. If you were to sell, you would not have to pay taxes on profits less than $250,000, or $500,000 for married taxpayers filing jointly as long as you lived in the home for at least two of the past five years. Any profits from a sale can be used to pay for a move to a Life Plan community like Paradise Valley Estates where pre-paid health expenses may also be deductible as a medical expense.
Moving to a Life Plan community like Paradise Valley Estaes can offer tax advantages as well as estate and asset protection advantages. To learn more, call (866) 835-3952 to schedule a personal consultation and tour.
The Life Plan advantage
Should your needs ever change, Life Care gives you guaranteed access to health care right on campus. Assisted living, enhanced assisted living, short- or long-term rehabilitation, memory care and skilled nursing are available—all at predictable costs, ensuring financial security. If your health ever changes, you’ll never pay the high cost of long-term care—or be required to move somewhere new.