Growing older comes with many perks for those who are open to exploring the benefits. In addition to senior discounts on movies, meals and more, moving into one’s golden years could offer some breaks when it comes to taxes and finances.
It is always best to go over tax- and finance-related plans with an accountant or certified financial planner to figure out what is in your best interest. However, generally speaking, here are some potential age-related tax perks.
Increase retirement savings
Older individuals can contribute more to employer-sponsored retirement accounts and Roth or traditional individual retirement accounts (IRAs), according to AARP. For 2023, the contribution limit for employees who participate in 401(k) and 403(b) programs, most 457 retirement savings plans and Thrift Savings Plan through the U.S. Federal Government can increase their contributions to $22,500 – a jump of $2,000 from last year. Those over age 50 can maximize contributions even more, up to a total of $30,000.
Larger standard deduction
The Balance Money says for tax year 2022, people age 65 or older can add an extra $1,750 to the standard deduction they’re eligible for if they are unmarried and not a surviving spouse. Those who are married and file joint returns can add $1,400. For tax year 2023, those amounts go up to $1,850 and $1,500. In addition, the standard eligible deductions increased. Most older taxpayers feel the bigger standard deduction plus the extra standard deduction is more than any itemized deductions they can claim and choose this option when filing their returns.
Reduce taxable income
The ability to contribute more to tax-deferred retirement accounts enables older adults to reduce their taxable incomes. This, in turn, reduces the amount that needs to be spent on income taxes.
Changes in filing threshold
According to The Arbor Company, which oversees senior living communities, the filing threshold is the income that must be made before being required to file a tax return. Typical taxpayers who are either employees or retired and drawing pensions or Social Security find the threshold increases over age 65. Single filers over age 65 do not need to file returns if their incomes are $14,050 or under. Married filers over age 65 have a threshold of $27,400. If primary or sole income comes from Social Security or a pension, those over age 65 may not have to file returns at all.
Elderly or disabled tax credit
Differing from deductions, a credit for taxpayers is available to people age 65 or older or retired persons on permanent and total disability who receive taxable disability income for the tax year, according to the Internal Revenue Service. In addition, this credit is for those who have an adjusted gross income or the total of nontaxable Social Security, pensions, annuities, or disability income under specific limits. The eligibility levels change from year to year. Credits range from $3,750 to $7,500.
These are some of the tax breaks American seniors can expect when filing their income tax returns. Speak with an accountant and financial planner about other perks that come with aging. Individuals also can visit www.irs.gov for further information.