It’s that time of year again! None of us look forward to it, with the exception of overly enthusiastic accountants. But muddling through our tax returns each spring is just a part of life. Now that you’re retired, your tax situation might have changed. So keep these four things in mind, and remember to consult a professional if anything is unclear.
A higher standard deduction. Every tax filer faces the choice to take a standard deduction, or itemize their deductions. Those who are 65 and older, or blind, actually qualify for a higher standard deduction. But remember, if you go this route, you can’t itemize other deductions such as charitable contributions.
Credit for the elderly or disabled. The IRS provides a special tax credit for those who are over age 65, or under 65 and disabled. However, this credit is subject to strict income limits, as reflected on line 38 on Form 1040:
- $17,500 for single taxpayers who qualify for the credit
- $20,000 for married taxpayers, filing jointly, and only one spouse qualifies for the credit
- $25,000 for married taxpayers, filing jointly, and both spouses qualify for the credit
- $12,500 for married taxpayers, filing separately, and living apart for the entire year
In addition to those income limits, the non-taxable part of your Social Security income, nontaxable annuities or pensions, or disability income must be less than:
- $5,000 for single taxpayers, head of household, widow(er) with qualifying child, or married taxpayers who are filing jointly and only one spouse qualifies for the credit
- $7,500 for married, filing jointly, taxpayers and both spouses quality for the credit
- $3,750 for those who are married, filing separately
Granted, those limits are quite strict. But more retirees qualify for the credit than you would think, so it makes sense to use a reputable tax software to calculate the credit for you, or consult with a skilled tax professional.
Some of your Social Security benefits might be taxable. Depending upon your total annual income, some of your benefits could be taxed. However, the process for calculating this tax can get confusing, so double check your calculations by consulting with a tax professional or using tax software.
Free help with your return. Discussing taxes can be a drag, but we do have some good news: The IRS sponsors volunteer-based tax programs, to provide free tax help to retirees! Call 1-800-906-9887 to locate a free help center near you. Or, if you already work with a tax professional, make sure you consult with them regarding any specific questions.