During tax time, tax Preparation companies typically promise huge refunds. However, the refund you get is a factor in your deductions, and there are many benefits seniors might not be aware of.
This article sheds light on series of tax deduction targeted at seniors and how to take advantage of such:
Increased Standard Deduction
For people with simple and uncomplicated tax issues that don't give to charity, don't have a small business, and have no complex business deduction to itemize, the standard deduction is a terrific route.
For seniors age 65 and above, the standard deduction value rises even though the specific amount is a value of your filing status. for 2021 filing season, the value is $1,350
Exemption from Social Security Taxes
Whatever you get as social security will not be taxed at the federal level. For people filing as single with social security alongside other earnings above $25,000 in a year, you might be exempted from federal income tax. For people with social security and additional payments in the range of $25,000 to $34,000, you only pay tax on half of the benefit.
Married folks filing jointly have their threshold for paying taxes on Social Security as $32,000. So if you and your partner had a joint earning in the range of $32,000 to $44,000, you are only taxed on half of your benefit.
Hobby and Business Deduction
Series of seniors become consultants after retirement, while some will take up a hobby that might give products they can offer for sale on Etsy or other local stores. Income tax is compulsory on such self-employment income.
There are, however, a series of deductions you can enjoy, which include almost all costs related to operating the business. Examples are:
Fees for an advert like the cost of website and business cards
Supplies like staples or craft tools
Home office expenses
Expenses paid to employee or consultant
Expenses for business education
Medical Expense Deduction
Starting from 2019, there is a higher threshold for the deduction of your medical expenses. As a result, seniors that have terrible healthcare expenses can enjoy some tax savings. As long as the medical cost is more than 10% of your AGI, you can deduct it.
While you might not deduct expenses for general health like vitamins, professional medical fees are allowed like doctor’s fees, dentists, etc. Here are sample expenses you can deduct:
Cost for prescription drugs
Expenses for medical health like therapy costs
Health insurance premiums
Expenses associated with care for seniors like daycare
All expenses from medical needs like parking fees
Disable and Elderly Tax Credit
The elderly and disabled tax credit lets you deduct funds from the entire amount you owe Uncle Sam. This is not a deduction in which you deduct from the whole taxable income. With this credit, you can also get a tax refund if what you deduct is more than what you owe Uncle Sam.
To qualify for this tax credit, you must either be permanently disabled or over 65 years old. The credit amount varies every year and changes with various filing statuses.
Charitable Deductions
It is possible to deduct most charitable donations, which includes any money you gave to charity. For instance, if you donated cloth, you can deduct the sale value of such cloth, not the original sale price.
Generally, one can only deduct up to half of one’s AGI. So make sure to contact a tax professional for how to take full advantage of your tax benefit if you donated a considerable amount to charity.
Benefit for Retirement Plan Contribution
Typically, many seniors keep working after their retirement age, while some continue contributing to their retirement accounts. All contributions in your retirement plan usually qualify for a saver's credit which allows you to deduct part of what you owe Uncle Sam from your donation.
This is unique from a tax deduction in which you only get to deduct from the taxable income amount you claim. On withdrawing your retirement benefits, there will be no income tax on such, making it essential to keep track of your retirement income.
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