Most retirees diligently save over the course of their working lives for their retirement. It creates a sense of control and stability that makes the transition much less stressful. To make retired life even sweeter, the IRS offers tax breaks that are exclusive to the older generations. However, not every retiree realizes these apply to them. Below are just a few of the many tax breaks seniors and retirees should know to maximize their retirement.
A Larger Standard Deduction
When you turn 65 you won’t have to pay as much in taxes on your income. Once you hit this age the IRS starts to take additional standard deductions resulting in more savings for you when you file your taxes. The deduction usually rests at $1,650 but for the 2021 tax year the amount was raised to $1,700, giving you even more savings to look forward to.
Higher Tax Filing Threshold
65 is the magic age where taxes get much less stressful and result in bigger returns. As a general rule, taxpayers must file a tax return if their income reaches $12,400 for a single filer. However, once a person reaches age 65, they don’t have to file unless they earn over $14,050 in any given tax year. Before you file, make sure to check that year’s filing threshold to see if you’re above or below and can reap the benefits.
Taxable Social Security Income
Depending on your earnings, your social security income may or may not be considered taxable. If your total income and half of what you earned from social security are less than $25,000, you may not have to include your earnings from social security when you file. There are several factors that complicate the process including whether or not you’re filing as head of household or you’re single.
However, even if you fall outside of these income levels, you most likely won’t have to pay taxes on all of your social security income.
Tax Credits for Older Adults
As long as you’re over 65 years old as of the last day of the tax year you qualify for a variety of tax credits. Many senior citizens, even if they end up owing money to the IRS, can eliminate some or all of the taxes owed thanks to the Tax Credit for the Elderly and Disabled.
Check with your accountant or tax preparer to see if you’re eligible based on your filing status and income level to see how much of the credit you can hope to get. If you are eligible, you can expect to receive between $3,750 to $7,500. This amount may vary year to year, so it’s important to recheck the amount each year.