Growing old is a price we all have to pay. We might prefer to be young forever, but we don't have much say about that. However, the bright side is that being an elder comes with a positive effect on your taxes. This means that what you send to Uncle Sam reduces.
Depending on your income, you might not have to file at all. Let us consider the implications of TCJA on you after crossing 65.
A Higher Filing Threshold
As you progress in age, your priority will shift from earning money. You, however, can receive more since you won't have to file for taxes. As long as you are earning up to $12,000, you will file for taxes. For seniors 65 years and above, you only need to file once you reach $13,600.
For joint filers that are both over 65, there is a chance to earn up to $26,000 before filing a return. If only one of you is 65, you can earn as much as $25,300 before filing.
A Bigger Standard Deduction
The not-so-good side is that this new law took the personal exemption away with it. This means there is no option to make an exception for you, your spouse, and any dependents.
There is, however, a bright side. The standard deduction almost doubled for every class of filers. This higher deduction comes as a checkmate to the personal exemption loss and also makes your tax easy. You do not have to itemize if you have paid your house, you have expenses more than the standard deduction, and you don't make substantial charitable contributions.
Before, itemizing can give you a considerable deduction compared to the standard one. This change in tax law altered this.
Paying taxes on a low-income base is also one of the effects of a substantial standard deduction. Bear in mind that the tax is on your adjusted gross income. You should embrace whatever will limit your taxable earnings.
With this, if you still have mortgage interest to take care of, and you give to charity, itemizing is possible, allowing you to beat the new deduction amount. Here are the categories:
Taxes on Social Security Might Have Been Exempted
Even though US citizens do pay tax on social security, it doesn't seem right. There was taxation of benefits in 1984. The effect was that a single taxpayer with modified gross income exceeding $25,000 (or married $35,000) got slammed up to 50% of their social security benefit as a tax
The year 1993 brought a change that involved singles having a modified adjusted gross income above $34,000 (couples filing jointly $44,000) have 85% of their benefits subjected to tax.
While this worked fine for a while, inflation disrupted it, yet they were not adjusted. This led many people to pay tax on their social security benefits. People living in states that tax benefits got hit twice
With the Tax Cuts and Jobs Act comes some hope that you will not have to face this, or at least with a minimal effect.
The Good news
For people that:
Are 65 years or above on the final day of the tax year
Are US Citizen, alien resident, non-resident married to a resident alien or US citizen
Qualify for the head of household, married and filing jointly and living with their spouse
These people might qualify for a tax credit for the elderly and disable. This is a massive tax credit that can pay off your tax liability.
Bear in mind that it is a credit. You will not be eligible if you don't have any tax. You can't get it as a refund, but it can diminish your tax significantly.
People with excessively high adjusted gross income do not qualify. There are limits as well that apply to the nontaxable portion of the social security benefits, annuities, nontaxable parts of pensions, etc.
The tax season is next in line after the holiday season. These changes might make you feel merrier than you imagine if you take advantage of them.
