In addition to the enjoyment of retirement days, seniors may also benefit from several tax deductions. In honor of Older Americans Month (each May,) let’s look at several of the tax deductions the IRS, and the state level, offer for seniors that many older adults and their family members might not know about.
Standard Deduction Increases
After the age of 65 the standard deduction increases, with the amount dependent on your filing status, and changes each year. In 2022, a 65-year-old taxpayer will get a $14,700 standard deduction ($12,950 for those 64 and younger.)
Social Security Tax Exemption
If your sole or primary income source is Social Security or a pension, this may mean you do not have to file a return at all, as Social Security earnings are often exempt from federal income taxes. Some states may not tax Social Security earnings either, such as in South Carolina and Georgia.
Different Filing Threshold
For 2022, single filers under the age of 65 must file a return when their income exceeds $12,950. Seniors don’t have to file a return until their income exceeds $14,700. Married filers over 65 do not need to file a joint return unless their income exceeds $28,700. If your sole or primary income source is Social Security or a pension, this may mean you do not have to file a return at all.
Business and Hobby Deduction
If you have become a consultant or are making profit from a hobby after retirement, you must pay income taxes on this self-employment income. Fortunately, you are eligible for deductions when you operate a business, including advertising expenses, supplies, education expenses, home office expenses and more.
Medical Expense Deduction
Certain medical expenses that exceed 7.5 percent of your adjusted gross income may be deducted. Some examples are: professional medical fees (paid to a doctor, dentist, or therapist for example), prescription drug costs, glasses, dentures, or orthodontic appliances, health insurance premiums, in-home help or adult day services, etc.
Elderly or Disabled Tax Credit
The Credit for the Elderly or the Disabled is available for taxpayers:
- aged 65 or older OR retired on permanent and total disability and received taxable disability income for the tax year; AND
- with an adjusted gross income OR the total of nontaxable Social Security, pensions annuities or disability income under specific limits.
You are able to deduct most charitable donations, whether money or the value of donated property, up to 60 percent of your adjusted gross income.
Retirement Plan Contribution Benefits
If you continue to contribute to your retirement accounts, retirement plan contributions are often eligible for a saver’s credit. This credit allows you to deduct a portion of the contribution from the amount owed to the IRS.
Estate and Gift Tax
Per Estate Law in 2022, you can pass up to $12 million to your heirs without any penalty. Additionally, the annual gift tax exclusion allows you to give up to $16,000 each year to your heirs without worrying about paying a gift tax.
At Anderson, Adkins & Company, we help our retired clients maximize their deductions so they can enjoy more of their hard-earned money and investments in their retired years. If you have any questions, please feel free to reach out to us at 706.288.2000 or info@AugustaCPAs.com.