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Again, it's that time. Commercials for tax preparation promise huge tax refunds. Dancers try to get drivers to join the local accounting firm at intersections all over the country. While this is happening, millions of people across the country rush to get their paperwork done on time.
Tax season can be exciting because refunds can be used to buy big things. Or, it can be very stressful and leave you with a huge bill and a lot of debt. No matter where you are on this scale, knowing a few things can assist you in conserving as much of your cash as possible, especially if you're looking for tax breaks for seniors.
The IRS gives seniors several tax breaks that many seniors and their families may not know about. And you or someone you care about may be eligible for even more benefits at the state level. Here are all the top 10 tax breaks for older people and how you can use them.
Increased the standard deduction
If your taxes aren't too complicated and you don't have a small business, give a lot of money to charity, or have a lot of complicated business deductions, you probably already take the standard deduction. The standard deduction goes up if you are over 65.
How much you pay depends on how you file your taxes and changes yearly. For the tax year 2021, seniors have a tax break of $14,250. In 2022, this will go up to $14,700. Most of the time, the tax deduction is the best choice, and it can even eliminate the need to itemize.
Different Filing Thresholds
The filing threshold is the amount of money you must make before filing your taxes. Different things can change your filing threshold. For example, if you work for yourself or run a small business, you must file a tax return if you make more than $400. After age 65, the filing limit is much higher for taxpayers who work or are retired and get a pension or Social Security income.
Single people under 65 who make more than $12,400 must file a tax return. If a senior's income is less than $14,050, they don't have to file a tax return. Unless their income is more than $27,400, married people over 65 do not have to file a joint return. If your only or main source of income is State Pensions or a pension, you may not have to file at all.
Social Security tax exemptions
Most of the time, federal income taxes do not apply to Social Security payments. If you file as a single person and your annual income from Social Security and other sources is less than $25,000, you may not have to pay federal income taxes. If your total income from Social Security and other sources is between $25,000 and $34,000, you only have to pay taxes on 50% of your benefits.
For married men filing jointly, the amount of Social Security benefits before paying any taxes is $32,000. If you make between $32,000 and $44,000 a year as a couple, you only need to pay taxes on half of your benefits. For people or couples who make more than the 50 percent threshold, 85 percent of their benefits are taxed.
Business and Hobby Deductions
When they retire, many older people start their businesses as consultants. Others start new hobbies and become good enough at them to sell on Etsy, at craft showcases, or even in local shops. You must pay taxes on your self-employment income if any of these are true. But if you run a business, you can take a wide range of tax deductions.
These deductions cover almost all of the costs of running the business, such as:
● There are costs for advertising, like the price of a website or cards.
● Tools, like those for making crafts or for printing.
● Costs for a home office.
● A specialist or employee who helps you run your business costs you money.
● Books about owning a business or the cost of going to a conference are examples of business education costs.
Tax Break for Medical Costs
You can list and deduct definite medical bills if you want to. This can help seniors save on taxes if they have a lot of health care costs. You can write off any medical costs over 7.5% of your adjusted income. Even though you can't deduct general health costs like vitamins or fitness club dues, you can subtract most professional medical costs like visits to the doctor or dentist. Also, you can deduct:
● Prescription drug costs.
● There are costs related to mental health, such as the cost of therapy.
● How much does it costs for glasses, dentures, or braces?
● Medical needs caused expenses like parking fees paid at the doctor's office.
● Premiums for health insurance.
● Care for seniors can be expensive, like assistance or adult day services.
Credit for the Elderly or Disabled
With an elderly or disabled tax credit, you can make money off the total amount you owe the IRS. This differs from deductions, which take money away from your total taxable income. If the amount taken off is more than what you owe the IRS, you can also get a tax refund.
You must be over 65 or have a permanent disability to get this credit. Your income can't be more than a certain amount, which changes yearly. Talk to your accountant if you think you might qualify for this deduction.
Charitable Tax Deductions
You can take a tax deduction for most money and property you give to charity. For example, if you give clothes to Goodwill, you can deduct how much they sold for, not how much you paid for them.
You can usually only deduct up to 60% of your adjusted gross earnings. Talk to an income planner about how to get the most out of your tax benefits if you give a lot of money to charity or start a foundation. How you give may affect how much tax you have to pay.
Benefits of Retirement Plans Contribution
Many seniors keep working after they are supposed to retire. Others keep putting money into their accounts for when they retire. Most retirement plan contributions qualify for a saver's credit, which lets you take a portion of the contribution of the amount you owe the IRS. This differs from a tax rebate, which you can only subtract from your taxable income.
The Gift and Estate Tax
According to estate law, you can give up to $12 million to your descendants without paying a fee in 2022. But you can also look into a gift tax exclusion for each year. This means you can consider giving up to $16,000 to your heirs each year without paying a gift tax.
State Senior Tax Breaks
Seniors have to pay taxes on more than just their federal income. You might also have to file and pay income taxes to your state. State tax rules vary, and where you live can affect how much you have to pay in taxes. Many states have special tax breaks for seniors, and most don't tax Social Security income. Here are some examples of tax breaks and exemptions that states offer:
● South Carolina doesn't have to pay taxes on Social Security benefits. Also, adults over 65 can leave out up to $10,000 of their retirement income.
● Some states, like Tennessee, Arizona, and Colorado, don't tax inheritance or estates.
● Low real estate taxes in states like Delaware make it much easier for people living on a fixed income to get by.
● There is no income tax in some states, like Florida and Nevada.
Helping an older parent file taxes is probably already talking about money, long-term proposals, and health care. So talk to your loved one about how they want to retire. Review this plan every year to ensure it still fits your loved one's needs.