As we get older, the U.S. tax code offers certain tax breaks for senior citizens. These tax breaks are subject to parameters such as income, filing status and more. Here’s a quick review of some methods for tax debt relief for seniors.
For additional free advice on tax debt relief for seniors, call the Tax Debt Relief Hotline.
Increased Standard Deduction
A standard deduction is the amount of your income that is not taxed by the government. You can either itemize your spending to calculate this deduction, or you can take the standard deduction from the IRS. The standard deduction changes depending on your filing status.
Once you turn 65, your standard deduction increases. If you are filing as single or head of household, your standard deduction increases by $1,650. If you are married filing jointly and either you or your spouse is 65 or older, the deduction will increase by $1,300. If you and your spouse are over 65, your deduction will increase by $2,600.
It’s important to note that according to the IRS, you actually turn a year older on the day before your birthday. That means that if you were born on January 1st, you technically turn a year older before the end of the previous year.
Cost of Debt for Employees
You probably know the interest rate you have on any of your debt. For example, you may have a $10,000 loan at a 10% interest rate. Ten percent of ten thousand is $1,000. If you pay your loan off on time, the cost of debt will be $1,000.
However, this calculation isn’t usually reliable for consumers. For one, if you miss payments or pay extra on your payments, the total amounts will change. Unlike the calculating the cost of debt for businesses, it also doesn’t take taxes into account. If you are an employee and you’re getting any kind of personal loan, taxes will not affect your payments. Payments for personal loans are not tax deductible.
Restrictions to the Standard Deduction
Not everyone automatically gets a standard deduction. There are a few limits to it, such as being a dependent. If you are claimed as another person’s dependent, your standard deduction will be limited to the greater of $1,100 or your earned income plus $350 (from the IRS).
Another limit is for nonresident aliens and dual-status aliens, who do not get the standard deduction. If you are an alien and you want to claim tax deductions, you have no choice but to itemize your expenses.
If your area was a federally declared disaster, then your standard deduction will increase by the amount of the loss.
Finally, the last limitation is if your spouse itemizes deductions. Even if you file separately, you cannot claim the standard deduction with a spouse who claims itemized deductions.
Higher Tax Filing Threshold
Beyond your standard deduction, seniors can actually make more money before they are subject to any taxes at all. For single taxpayers under 65, they must file tax returns as soon as their income surpasses $12,000.
If you file as single, head of household, or as a qualifying widow or widower, the filing threshold increases to $13,600. That means if you or your spouse is 65 or older and you file jointly, you can earn up to $25,300 before you have to worry about paying any taxes. If you’re both 65 or older, that number increases to $26,600.
Property Tax Breaks
Property tax rules differ between states and even between counties. However, in many places, it is possible to get a property tax credit.
In general, you have to be at least 65 years old or totally disabled and have a total household income under a certain amount. In order to qualify for the property tax credit, you will have to check the specific eligibility rules near you.
In some states, it is easy to get an exemption from the state and education portion of property taxes.
The Tax Credit
If you have tax debt, the tax credit is potentially the most beneficial option for you. This is a credit, not a deduction. It doesn’t affect your taxable income, but it reduces your tax liability or taxes owed.
Therefore, if you owe money in taxes, a tax credit would reduce that amount dollar for dollar, up to the amount of the debt. If you qualify for a $3,000 tax credit, but only owe $1,000, your benefit is limited to $1000.
The Tax Credit for the Elderly or Disabled is only available to people who are 65 before the year ends. As usual, the value of the credit depends on your tax filing status and your income. Call the Tax Relief Hotline to get more information and find out if you qualify for the tax credit.
Social Security Benefits Are Not Taxed in Most States
If your only income is social security, you may not have to pay taxes on your benefits at all.
Add up all of your income, including taxable retirement funds and payments collected from social security benefits.
Based on the results you get from that equation; you can begin to figure out if you will owe taxes on your social security collections. If the total of your income plus half of your social security is less than $25,000 and you are not married, you will not have to include any of your social security as taxable income.
If you’ve lived with your spouse in the last year, and you file jointly, that threshold may decrease to $0. However, if you have a different situation, it’s possible that you could pay taxes on up to 85% of your social security income.
Since this determination varies significantly, you need to talk to a professional. Call the tax and IRS experts at the Tax Debt Relief Hotline with your questions.
More Solutions Tax Debt Relief for Seniors
The five tax breaks listed here, are just the beginning. There are other ways to get tax relief after you have retired and/or turned 65. For example, employees over 50 can pay less income tax if they are contributing to their 401(k). You can also withdraw money from your retirement account without a penalty after you are 59 ½ years old.
Don’t miss out on the financial benefits or the financial relief that is available to you as a senior. Call the Tax Debt Relief Hotline at (888) 452-7841. It is a completely free service that gives you access to professionals who can understand your situation and get you out of debt.