Everyone wants to save money on their taxes, and older Americans are no exception. If you’re age 50 or older, here are five 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. If you are under age 65, you must have your physician complete a statement certifying that you had a permanent and total disability on the date you retired. You must also have taxable disability income that meets certain requirements.
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 the credit if you meet the following:
In 2017 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. Retirement Account Limits Increase. Once you reach age 50, you are eligible to contribute (and defer paying tax on) up to $24,500 in 2018 (up $500 from 2017). 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.
4. 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.
5. Higher Income Tax Filing Threshold. Taxpayers who are 65 and older are allowed an income of $1,550 more ($2,500 married filing jointly) in 2017 before they need to file an income tax return. In other words, older taxpayers age 65 and older with income of $11,950 ($23,300 married filing jointly)in 2017 or less may not need to file a tax return.
Don’t hesitate to call if you have any questions about these and other tax deductions and credits available for older Americans.