2018 Tax Help for Seniors
Federal income taxes, tax credits, and tax deductions for seniors differ from other age groups
U.S. tax laws are complex no matter what age you are, but they can get even more confusing as you get older. To further complicate the situation, the federal government made sweeping changes to the rules for 2018. Filing taxes can have a significant impact on retirement planning for seniors, so staying informed will help you make sense of the current laws, take advantage of tax credit and deductions for seniors, and avoid costly surprises.
To help you get started, here’s some guidance on how senior taxes differ from other age groups. Since the recent alterations will affect taxpayers differently, you should consider hiring a certified financial advisor for seniors to prepare your taxes this year and plan for the future.
Senior filing threshold
Before you even start filing your taxes, you may be wondering, “Do I need to file a tax return?” For taxpayers who were 65 or older by the end of 2018, the filing threshold — whether you need to file — is higher, says Josh Zimmelman, president and owner of Westwood Tax & Consulting. If you’re a single filer over 65 and have a gross income of $13,600 or higher, then you need to file a tax return. If you’re a married couple filing jointly with a combined income of $26,600 or higher, you also have to file.
Standard tax deduction for seniors
You get a higher standard deduction if you or your spouse is 65 or older and choose not to itemize your deductions. For single filers, the 2018 standard deduction is $13,600. (It’s only $12,000 for single filers under 65 years old.)
Taxable Social Security benefits
Many seniors are surprised to learn that Social Security benefits above certain amounts are subject to federal income taxes, says Harry Daniels, Certified Public Accountant and Certified Financial Planner at Duggan, Joiner & Company Certified Public Accountants. This could put you in a higher tax bracket and increase the amount of taxes you owe by thousands of dollars. But with the new tax brackets and income thresholds, most tax rates are lower, so your taxes paid on the same Social Security benefit could also be lower. The Internal Revenue Service (IRS) provides a Social Security benefits worksheet in the instructions for IRS Form 1040 and Form 1040A to help you calculate how much of your Social Security benefits is taxable.
Tax credit and deductions for seniors
At the age of 50, and especially after age 65, you may qualify for additional tax breaks, such as:
Credit for the Elderly or Disabled
If you’re 65 or older, you may qualify for this tax credit for seniors based on your age, filing status, and income. To receive the Credit for the Elderly or Disabled, you must first apply, then file using Form 1040 or Form 1040A. If you file using Form 1040EZ, you won’t qualify for the credit.
Health Coverage Tax Credit
Effective through 2019, the Health Coverage Tax Credit (HCTC) refunds 72.5 percent of qualified health insurance premiums to eligible individuals between 55 and 65 years old and their families. If you qualify, you may elect to receive this tax credit for seniors either through advance monthly payments paid directly to your health plan administrator or through your federal tax return.
You can still make tax-deductible contributions to your retirement accounts even if you are retired or semi-retired, says Zimmelman. This lowers your taxable income for the year and helps you defer or avoid taxes on more money. If you’re over the age of 50, the maximum contributions, which are higher than those for younger age groups, are:
- $24,500 total to a 401(k) account, which is $18,500 for the maximum employee elective deferral and the $6,000 employee catch-up contribution allowed over age 50
- $6,500 to a traditional or Roth individual retirement account (IRA)
- $4,450 to a health savings account (HSA) for yourself, which is comprised of the $3,450 contribution limit and $1,000 catch contribution allowed over age 55
- $7,900 to a health savings account (HSA) for your family, which is comprised of the $6,900 contribution limit and $1,000 catch contribution allowed over age 55
IRA distributions to charity
If you are over age 70.5 and must withdraw required minimum distributions (RMD) from your IRA, you may directly transfer up to $100,000 per year to qualified charities. The IRA distribution is excluded from your taxable income and counts toward your RMD for the year, but it doesn’t count as a charitable contribution. If you itemize your deductions, this lowers your adjusted gross income (AGI) and can impact other areas, such as medical expenses, passive losses, taxable Social Security income, and more, says Lee Reams, Sr., an enrolled agent and founder of TaxBuzz. If you don’t itemize your deductions, you essentially receive the benefit of a charitable contribution to help offset your IRA distribution.
You can earn money from investments even after you retire, but interest, dividends, and capital gains are taxed at a lower rate than other income sources. If you took a loss when you sold your investments, you can also use that loss to reduce your taxable income — and carry it over from year to year. Plus, you can deduct a limited amount of investment-related expenses, such as financial planning and broker fees.
Medical and dental expenses
Seniors often have higher medical expenses than other taxpayers, but some of these expenses may be tax deductible. If you itemize your deductions, you may be able to deduct out-of-pocket medical expenses that exceed a percentage of your adjusted gross income. For 2018, the adjusted gross income threshold for this deduction decreased from 10 percent to 7.5 percent, so more taxpayers may be able to take advantage of this tax deduction. At the same time, the higher standard tax deduction for seniors in 2018 may make this irrelevant to you because it may exceed your total itemized deductions.
Programs that offer free tax help for seniors
You may think you can’t afford to hire professional help, but a variety of reliable resources are available for tax preparation, filing, and planning at no cost to you.
Tax Counseling for the Elderly
Seniors age 60 or older can take advantage of Tax Counseling for the Elderly (TCE), an IRS-funded program administered by nonprofit organizations and operated by volunteer tax professionals who are IRS-certified. TCE is specifically designed to offer tax help for seniors who no longer work and are on a fixed income from sources such as pensions and retirement accounts.
Volunteer Income Tax Assistance
Ideal for seniors who still earn taxable income, Volunteer Income Tax Assistance (VITA) offers preparation and filing of income tax returns by volunteer tax professionals, as well as counseling on how to reduce your tax liability with tax credit and deductions for seniors and other taxpayers. VITA volunteers are restricted from preparing certain tax forms, such as a Schedule C showing income losses, so if your situation is particularly complicated, the IRS recommends hiring a paid professional instead.
AARP Foundation Tax Aide
For taxpayers over the age of 50, the American Association of Retired People (AARP) Foundation offers tax prep and counsel through volunteer, IRS-certified tax professionals. You don’t have to be an AARP member to take advantage of this service.
TCE and VITA also help with state income tax for senior citizens, but additional resources in your local community may offer more specialized help with preparing and filing state taxes. Check with individual state tax bureaus or treasury departments, state bar associations, and local CPA or tax preparer associations to find help near you.
Tips to make filing next year easier
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- While changes in federal law for 2018 may have impacted income tax for senior citizens in significant ways, many tax rules were unchanged. Fidelity advises taxpayers to remember the fundamentals, such as retirement savings accounts, tax-loss harvesting, and charitable contributions.
- In 2019, the itemized medical expenses threshold mentioned earlier will revert to 10 percent of your annual gross income. So, you’ll have to pay more out-of-pocket medical expenses before you can qualify for this tax deduction.
- If your total itemized deductions will fall below the new standard deduction, consider “bunching” your itemized deductions into a single year, then skipping one or two years and taking the standard deduction.
- Be aware of telephone, postal mail, and email scams posing as the IRS. Never give out personal or financial information over the phone or through email. Ignore emails claiming to be from the IRS. They will not communicate your account status through email. Only use contact numbers on the official IRS website; don’t return calls to numbers provided by callers.
- To get additional tax help for seniors and retirees, visit the IRS online.
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