In 1935, President Franklin D. Roosevelt established the U.S. Social Security system and designated age 65 as the retirement age. Since then, it’s become the typical age to quit working, kick back, and enjoy the fruits of your labor. To provide additional support to those over age 65, our government also offers tax breaks to older Americans. This article summarizes a few of the most important.
The standard deduction is an amount of money that is subtracted from total income before taxes are calculated. Basically, it is money that you do not have to pay taxes on.
In the tax year you reach age 65, you get an increase in the standard deduction, which results in lower taxes. The amount of the increase depends on your tax filing status.
Generally, 85% of your Social Security benefits are subject to tax. However, the percentage of your benefits that are subject to tax may be lower if your total income is lower.
If you are single
If you are married filing jointly
Most property owners are provided with a homeowner exemption on their principal place of residence that is auto renewed every year. The good news is some states and counties offer additional benefits to seniors once they reach 65. These exemptions could include:
Property tax freezes if you’re 65 or older and stay within certain income thresholds.
Senior exemptions that reduce the equalized asset value of your principal residence.
It is important to check with your county assessor’s office or website to ensure you take advantage of all these available benefits. Some exemptions require annual filing with the county while others only require a one-time filing and then automatically renew going forward.
This is available to all taxpayers but those over 65 are more likely to take advantage of the ability to deduct medical expenses that exceed 7.5% of your adjusted gross income (AGI). Basic health maintenance expenses, such as vitamins, food supplements, and gym memberships are not deductible. However, the following are:
Prescription drug costs
Mental health expenses, such as the cost of therapy
The costs of glasses, dentures, or orthodontic appliances
Expenses incurred due to medical needs, such as parking fees paid
at the doctor’s office
Health insurance premiums
The costs of senior care, such as in-home help or adult day service
While not exclusive to seniors, the rules related to income and expenses from a hobby may become more pertinent in retirement. Certain deductions are available to help reduce income generated from such pursuits. Other tax breaks, such as Elderly or Disabled Tax Credits, are only offered to senior citizens. Although rules and benefits vary widely, some states provide income tax deductions and income exclusions to seniors of varying ages.
The rules change frequently and some of these deductions can be complex to calculate. Please consult with your advisor or tax professional to help ensure you are taking advantage of all the deductions and credits available to you.
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