When it comes to taxes, growing older can have its advantages. But older individuals may also have additional tax-related requirements. Here’s a quick overview of the tax and financial breaks available as you reach a certain age.
Higher standard deductions. You’re eligible for a higher standard deduction once you reach age 65.
Tax credit for the elderly. You may qualify for this direct credit against taxes if you’re age 65 or older during the tax year. There are limitations if your tax-free pension benefits, such as social security, exceed certain levels. Income limitations also apply.
Tax breaks for social security benefits. Generally, you’ll pay no tax on social security benefits if the total of one-half of the benefits plus all other income is less than $25,000 (singles) or $32,000 (married filers). Above those levels, you’ll pay tax on up to 50% of your benefits. High-income seniors could be taxed on up to 85% of their social security benefits.
Higher return filing threshold. Because of the higher standard deductions and potentially tax-free social security benefits,your taxable income may not reach the filing threshold and you may not need to file a federal income tax return. You may need to file for other reasons, though.
Higher contributions. Once you reach age 50, you may contribute more to your retirement accounts. Also, at age 55, you can contribute an extra amount to a health savings account.
Reverse mortgage. If you’re at least 62 years old and own your own home, you can use a reverse mortgage to convert your home into nontaxable income. With a reverse mortgage, the lender makes loan advances to you which don’t have to be repaid until your death. Repayment of the loan and accrued interest would also come due if you sell the house or move, but you won’t have to repay more than your home is worth.
Home sales. You may plan to sell your home if you move or want to downsize in retirement. Couples who file a joint tax return can keep up to $500,000 of the profit on a home sale tax-free ($250,000 for singles).
If you are preparing for retirement and have questions about how it will affect your taxes, we’re here to help. Our team of tax professionals is ready and happy to assist you in the process. Schedule time here: https://www.bas-pc.com/appointment-center/