Retirees, These Secret Tax Breaks Could Save You Big Money
Many would agree that there is nothing overly exciting about getting older. Retirement edges closer, along with the stress about how to make due on a limited budget. But with age comes a few key tax breaks for retirees you’ll be happy to learn you qualifying for. The IRS has a few small gifts for people with 65 candles on their birthday cake – – but only if you know where to find them.
Retirees can’t afford to let a single dollar go to waste. Knowing which secret tax breaks to claim could be your way to save large sums of cash every April. Here are nine key tax breaks for retirees that will have you pocketing more money each year.
1. More deductions for your medical expenses
Medical expenses are a huge burden on seniors. Without these significant tax breaks for retirees, healthcare can become a major financial strain. Luckily, you can deduct things such as co-payments for doctor visits, prescription drugs, traveling expenses, and Medicare premiums as long as you itemize your tax return. The 2018 tax bill temporarily reduced the threshold for claiming it to 7.5% of adjusted gross income, down from the current 10%, making it easier for retirees to save a bit of cash.
Next: A state-by-state exemption you must know about
2. Lower property taxes
Homeowners have surely noticed an uptick in their property taxes year over year. But property tax rules vary by state and local jurisdiction, meaning retirees and older seniors can save significant money by qualifying for specific deferrals or exemptions. Washington state, for example, reduces property tax rates for those over 61. South Dakota has multiple programs based on age and disability that allows both groups to earn property tax reductions through real estate assessments. While many of these tax breaks for retirees vary by location, some are available to those younger than 65 as well.
Next: Do you even have to file a tax return?
3. Higher tax-filing threshold
Its slightly easier for retirees to save money by not filing a tax return at all. One advantage of getting older is that you have a higher gross income threshold than younger Americans, which means some aren’t required to give any money back to Uncle Sam. People age 65 and older can bring home a gross income of $11,950 (or $23,300 for couples both over 65) before having to file a tax return. This is $1,550 (or $2,500 of married) more than the tax-filing threshold for younger workers.
Next: A benefit for veterans
4. Tax-free military retirement pay
Many states offer some variation of tax reductions for retired military members. But more than half of all U.S. states do not tax military retirement pay at all, which could save these vets a large chunk of cash each year. These states are the ones hoping to lure seasoned veterans with valuable skills to their workforce. But military members might want to consider their retirement location carefully. States like Virginia, Vermont, New Mexico, and California fully tax this income.
Next: Save upward of $1,000 with this tax break
5. Bigger standard deduction
For many seniors, it pays to take a standard deduction rather than itemizing their tax return. This is especially true if you have minimal mortgage interest, charitable contributions, or business expenses to write off. The IRS offers additional relief for retirees by way of a higher standard deduction. Filers who are 65 and over or blind, can now claim an additional $1,300 when they file their 2018 taxes. Two married taxpayers who are both over 65 can lower their taxable income by an extra $2,600 through this tax break.
Next: What you need to know about Social Security tax exemptions
6. Social Security tax exemptions
Social Security is many retiree’s primary sources of income. Unfortunately, there are 13 states that put additional strain on your finances by taxing Social Security. That said, all but West Virginia, Vermont, North Dakota, and Minnesota offer some form of relief with income-related exemptions. Some states are better than others when it comes to tax breaks for retirees, so choose where you want to live wisely if you have any hopes of hanging on to a bit more of your earnings.
Next: A tax break for retirees looking to downsize
7. A downsizing safety net
Seniors often sell their homes to downsize during retirement. If you’ve lived in your home for quite some time, you probably stand to make a large profit on the sale if you earned equity. One of the most profitable tax breaks for retirees is that you are exempt for taxes on the profit you make on a sale – up to $250,000 of that gain from your income is not taxable, or up to $500,000 if married and filing jointly.
Next: A lesser-known tax credit
8. Additional credits for the elderly and disabled
Those who retire on permanent and total disability qualify for a hefty tax break through the Credit for the Elderly and the Disabled. The credit ranges from $3,750 to $7,500, depending on your filing status. But figuring out if you qualify for this credit may give you a few extra gray hairs. Few people qualify because their Social Security benefits cause them to exceed the income limits. And if you live with your spouse during the year, you must file jointly.
Next: Don’t forget about this invaluable resource come Tax Day!
9. Free tax help for seniors
There’s no denying that filing taxes each year gets confusing, especially with all the changes being made this year. Fortunately, people 60 and older can score free tax assistance through The Tax Counseling for the Elderly (TCE) Program. IRS-certified volunteers provide basic income tax return preparation and electronic filing to qualified individuals at community locations across the country — no application needed. What a relief!
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