Once you turn 50, and especially after age 65, you can qualify for extra tax breaks. Older people get a bigger standard deduction, and they can earn more before they have to file a tax return at all. Workers over 50 can also defer or avoid taxes on more money using retirement and health savings accounts. Here are some ways to save money on taxes as you age.
10 tax breaks for people over 50
10 tax breaks for people over 50
If you don’t itemize your tax deductions, you can claim a larger standard deduction if you or your spouse is age 65 or older. The standard deduction amount for older taxpayers is $1,250 higher than the deduction for people under age 65. And if a retiree is unmarried and not a surviving spouse, the standard deduction is $1,550 higher than that of younger taxpayers.
People age 65 and older can earn a gross income of up to $11,900 ($23,200 for couples both age 65 and older) before they are required to file a tax return. That's $1,550 (or $1,250 per spouse) more than the tax-filing threshold for younger workers.
Property tax rules vary considerably by state and local jurisdiction. However, in some places people who are above a certain age and who also earn below a specific income level qualify for property or school tax deferrals or exemptions.
If you or your spouse is age 65 or older, you have a low income and you file using form 1040 or 1040A, you could be eligible to claim a tax credit. Retirees who qualify may be able to reduce their tax bill by taking the credit. Younger people who are retired and disabled might also qualify.
Workers age 50 and older can contribute an additional $1,000 to an IRA, or a total of $6,500 in 2017. A 50-year-old worker in the 25 percent tax bracket who maxes out his IRA would save $1,625 on his current tax bill, $250 more than the maximum possible tax break of $1,375 for a younger retirement saver in the same tax bracket.
The tax savings is even bigger for older workers with access to a 401(k) plan. Employees age 50 and older can defer paying income tax on $6,000 more than younger workers if they contribute that amount to a 401(k) plan, or a total of $24,000. An older worker in the 25 percent tax bracket who maxes out his 401(k) plan could save $6,000 on his current tax bill, $1,500 more than a younger worker in the same tax bracket could potentially save. Income tax won't be due on this money until it is withdrawn from the account.
Younger workers who raid their retirement accounts are hit with a 10 percent early withdrawal penalty unless the money is used for a couple of specific purposes. However, once you turn age 59 1/2, you can withdraw money from an IRA for any reason without incurring the 10 percent tax. And if you leave your job at age 55 or later, you can begin penalty-free 401(k) distributions from the account associated with the job you most recently left at that time. However, income tax will be due on withdrawals from traditional retirement accounts at any age.
After age 70 1/2, you are typically required to withdraw money from your traditional retirement accounts and pay the resulting income tax bill. However, if you don't need the money, there is one way to avoid income tax on withdrawals from traditional retirement accounts. Retirees ages 70 1/2 and older who transfer any amount up to $100,000 directly from their IRA to a qualified charity will not owe income tax on the contribution.
Workers with high-deductible health plans can claim a tax deduction on contributions to a health savings account. Distributions from these accounts are tax-free when used to pay for qualifying medical expenses. Individuals who are age 55 or older by the end of the tax year are eligible to contribute up to $4,400 to a health savings account, $1,000 more than their younger counterparts.
The Tax Counseling for the Elderly program provides free tax assistance to those age 60 or older. IRS-certified volunteers assist older taxpayers with basic tax return preparation and electronic filing between Jan. 1 and April 15 each year.
Finding a good CPA for your taxes is simple with these seven tips: 1. Ask about their specialization; 2. Verify their identification number, 3. Look up their license, 4. Consider their experience, 5. Confirm their willingness to sign, 6. Ask for advice, and 7. Determine their fees.
Congress has passed the largest piece of tax reform legislation in more than three decades. The bill went into place on January 1, 2018, which means that it will affect the taxes of most taxpayers for the 2018 tax year.