You Just Turned 65. Here are 5 Unique Tax Moves
You’re never too old to learn something new! If you just turned 65, this blog is for you. We’ve compiled 5 unique tax moves that are just for you. Let’s dive in and get you in the best position for this upcoming tax season.
#1: Know, And Utilize, All Available Tax Credits
Tax credits are a certain amount of money that subtracts directly from the amount of taxes you owe. There are specific tax credits explicitly designed for those aged 65 and older. The credit for the elderly and disabled ranges from $3,750-$7,500. To figure out what amount of credit you’re eligible for, use Form 1040.There are also several other tax credits you may qualify for:
Earned income tax credit
Residential energy credit
Electric vehicle credit
Premium tax credit
In addition, in some states, people over 65 can apply for property tax relief. Available tax breaks can include the following:
Deferrals: Postponing tax payments
Tax credits: Credit for the portion of the real estate taxes or yearly rent
Exemptions: Reduce the value of our home that is taxable
Rate freezes: Prevents property tax increases
#2: Be Smart About Your Required Minimum Distributions (RMDs)
Required minimum distributions (RMDs) are the amount you must take out of your retirement savings accounts annually to avoid tax consequences. The amount of RMD you must take is decided by dividing the account’s year-end market value by a life expectancy factor determined and published by the IRS. Timing is essential with RMDs. You must start taking RMDs by April 1st of the year following the year you reach the age of 73 years old. For each year after, the RMD must be taken by December 31st. Timing is critical because, for example, if you choose to take your first RMD between January and April of the following year, you will be required to take two RMDs, which could place you in a higher tax bracket that year.
#3: Deduct Your Medical Expenses - Including Long-Term Care (LTC) Insurance
If you choose to itemize your tax deduction, be sure to deduct any medical expenses you paid for yourself or a qualifying relative that are more than 7.5% of your adjusted gross income (AGI). There are more qualifying medical expenses than you may think! Qualifying medical expenses can include:
Inpatient hospital care
Nursing services
Medical insurance premiums
Long-Term Care Services
Home renovations for medical purposes,
Etc.
Long-term care services can be costly, including insurance premiums, and you may be able to deduct them, up to a specific limit, based on your age. This chart shows the maximum amount eligible for a tax deduction, per person.
#4: Remember, You Get A Higher Standard Deduction
For your 2022 tax return, filed in 2023, you can add an extra $1,750 to the standard deduction if you are unmarried and not a surviving spouse. If you’re married and file a joint tax return, that amount changes to $1,400. But, make sure you meet the qualification of being age 65 by January 1st to qualify for the additional deduction for the previous tax year.Remember, you can choose the standard deduction or to itemize, but you can’t do both. For the 2022 tax return, the base standard deductions before the older-adult bonus are:
$29,900 for married taxpayers who file jointly and qualifying widow(er)s
$19,400 for heads of household
$12,950 for single taxpayers and taxpayers that file separately
Work with your tax preparer to determine if it’s better for you to take the standard deduction or to itemize. For example, you may gain a higher deduction by itemizing medical bills, charitable donations, and other deductible expenses.
#5: Evaluate If and How You’ll Pay Taxes on Your Social Security Benefits
The Social Security Administration (SSA) taxes those receiving Social Security above certain income thresholds. About 40% of those receiving social security must pay income taxes on their benefits. Annually, SSA gives you a summary of your benefits from that year via Form SSA-1099. You use this statement to determine if you must pay taxes on your benefits. Your income determines how much of your benefits may be taxed. The SSA gives the following thresholds for both individuals and married couples:
If you file your federal tax return as an individual:
If your combined income is between $25,000 and $34,000 = Up to 50% of your benefits may be taxed
If your combined income is more than $34,000 = Up to 85% of your benefits are subject to income tax
If you file your federal tax return jointly with your spouse:
If your combined income is between $32,000 and $44,000 = Up to 50% of your benefits may be taxed
If your combined income is more than $44,000 = Up to 85% of your benefits are subject to income tax
If you’re married and file a separate federal tax return:
SSA estimates that you’ll likely have to pay taxes on your benefits.
You can pay your social security benefits taxes in multiple ways, either by making quarterly payments or by withholding federal income tax. Working with your financial advisor to determine which method is ideal for you would be wise. Once you know if, when, and how you’ll pay Social Security Benefit taxes, you can work it into your retirement spending plan to proactively plan.
BONUS TIP - If Your Spouse Is Still Working, They May Be Able To Contribute To Your IRA
Are you 65, but your spouse is still working? What if we told you they could help contribute to your individual retirement account (IRA)? There’s something called spousal IRAs that allow working spouses to contribute to an IRA for a nonworking spouse. They’re essentially the same as Roth or traditional IRAs but are designed for married couples. There is a catch, though, spouses must file joint tax returns to use a spousal IRA. IRAs have contribution limits - $6,000 for people under 50 and $7,000 if you’re 50 and above. While spousal IRAs can be contributed to by both spouses, the account must be in one person's name. But don’t worry, you can share the account distributions in retirement. They’re designed to help couples accelerate their retirement savings. If both spouses contribute up to the contribution limit annually, that amount can grow faster. If your spouse is still working, they can contribute up to the IRA contribution amounts on your behalf. Helping your retirement savings continue to grow. If you just turned 65, you may have further questions about taxes, retirement, social security, Medicare, etc. We’re here to help! Even if you’re not quite 65, it’s never too early to plan for retirement. Please reach out to us anytime with your questions.
