Retirement has many benefits – more time for family, time to try out new hobbies and no requirement to set an alarm clock each morning. Many Americans begin saving for retirement the day they begin working. The importance of having a nest egg to fund activities and support daily living during your retirement years is a crucial part of making sure those golden years are actually golden. However, once you have worked, saved and finally retired, how do you make sure you stay on track?
One of the best ways to protect your nest egg and make smart financial decisions throughout the year is to understand what taxes look like after retirement. The Internal Revenue Service recognizes that income and savings look a bit different once you are no longer working, so your taxes will look a bit different, too. Understanding your taxes after age 65 and knowing how to prepare and file each year can have a positive impact on your wallet.
Tips for Tax Season
Every year, New Year’s Day brings a new year full of possibilities and a new tax year, potentially full of changes. To make sure you are ready for whatever the tax code brings, there are things that can be done all year long to make tax season easier to manage. Based on tips from the Internal Revenue Service and top tax management firms, here are the five best ways to be prepared:
- Understand what tax changes apply to the current year. Big or small, each year there are some changes to the tax codes. To stay current with the changes and to prepare for what is to come, go straight to the experts at the IRS for the latest information.
- Be careful with Social Security. Understanding how to figure out the taxable amount of your Social Security benefits can be a headache. It is important to read the updates from the IRS each year and to complete the Social Security benefits worksheet.
- Get help for tax preparation. There are community benefits available specifically for seniors, if you know where to look. Tax Counseling for the Elderly (TCE) offers free tax assistance for Americans age 60 and older. Tax return preparation assistance is available during the normal period for filing Federal income tax returns, which is from January 1 to April 15 every year. However, the program’s activities make sure elderly taxpayers receive efficient and quality tax assistance year-round. Find a TCE representative near you today!
- Be cautious. Unfortunately, millions of Americans are victims of elder fraud every year; and these schemes can include tax scams. Make careful spending decisions throughout the year and always remember that the IRS will NEVER make unsolicited contact with you through phone calls, email, text or any other method.
- Always think ahead. Stay organized throughout the year. It helps to have a file of necessary tax information collected ahead of time, and it gives you an easy place to store important documents. Having easy access to tax returns from previous years is also helpful. If you are planning a major life change, such as a move to a senior community like Sugar Grove Senior Living, make sure you understand that will change your tax situation.
Tax Deductions for Seniors
According to the Internal Revenue Service (IRS), there are a number of important changes for seniors to be aware of when filing taxes for the 2021 tax year. These include:
A Larger Standard Deduction. This means that seniors will not need to pay taxes on as much of their income because the IRS allows you to begin taking an additional standard deduction beginning at age 65. For the year 2021, seniors can add an extra $1,700 to the standard deduction they are otherwise eligible for, as long as the senior is unmarried and not a surviving spouse. Seniors can add $1,350 for each spouse who is age 65 and older if the senior is married and filing a joint return. Those numbers are expected to change – and increase – for the tax year 2022!
A Higher Tax Filing Threshold. The threshold for filing a tax return is higher if you are age 65 or older. Most single taxpayers have to file a tax return if their earnings reach $12,550, which is the amount of the standard deduction for non-seniors. In 2021, your deduction can be up to $14,250 if you are over the age of 65 and you can jointly earn up to $26,450 if you or your elderly spouse are filing jointly. If you are both 65 or older, your deduction could be $27,800!
Taxable Social Security Income. Your Social Security benefits may or may not be taxable income. The Social Security Administration (SSA) should send you a form SSA-1099 around the first day of each new year that shows exactly how much you received in Social Security payments, and there is an online IRS tool where you can input your numbers. You do not need to include any of your Social Security as taxable income if the total of all your other income, and half your Social Security, is less than $25,000 and you are single, a qualifying widow or widower or you are a head of household. That number increases to $32,000 if you are married and filing a joint return. If you fall outside of these income levels, up to 85% of your Social Security benefit payments may be taxable.
Tax Credits for Seniors. The tax credit for the elderly and disabled can wipe out some, and potentially all, of your tax liability if you end up owing the IRS. To be eligible for this credit, you must be 65 or older as of the last day of the tax year, you must be a US Citizen or a resident alien and you must be filing jointly if you are married, unless you did not live with your spouse during the tax year. You are not eligible for the credit if you earn:
- $17,500 or more and your filing status is single, head of household, or a qualifying widow or widower
- $25,000 or more, and you file a joint married return
- $20,000 or more and you’re married, but only one of you otherwise qualifies for the credit
- $12,500 or more, and you file a separate married return, but you lived apart from your spouse all year
Making the Most of Each Day
At Sugar Grove, our goal is to support each of our residents, each day. With our incredible resources, we are able to meet the needs of residents as their needs and circumstances change.
Contact us today to learn more about the care and community at Sugar Grove!