Seniors have several ways to lower taxable income and pay less taxes than others not in the same age range. These tax breaks enable them to keep more money in their pockets when they are no longer in the workforce or only part-time.
Take the Extra Standard Deduction
If you are 65 or older, you can reduce taxes by claiming an extra standard deduction. Although you can already claim the standard deduction, you can also claim an extra tax deduction for over 65.The 2023 standard deduction—for tax forms filed in 2024—can be claimed by anyone. If you do not itemize, singles and those who are married but filing separately can claim a deduction of $13,850. Those who are married and filing jointly and qualified widowers can claim a standard deduction of $27,700. The heads of households can claim $20,800.
People 65 or older and blind also get a special extra standard deduction. Blind individuals get an additional $1,500, but if you are 65 and older and blind, you can receive an extra $3,000 per person.
Contribute More to Your Retirement Accounts
After you turn 50, you can contribute more to a retirement account—called catch-up contributions. If you put money into a traditional individual retirement account (IRA) or a 401(k), all contributions are tax deductible up to the contribution limit. Any contributions to a Roth IRA or a Roth 401(k) are after-tax.
Employees 50 or older can make a $1,000 annual catch-up contribution to their IRA. People who are working, are 50 or older, and have a 401(k), can make catch-up contributions of $7,500 annually.
Write Off Your Health Expenses
If you are self-employed, which Medicare defines as an independent contractor, a partnership running a trade or business, or having your own business, you can deduct the costs of Medicare parts A, B, D, and any Medigap plans. You may also be able to deduct any co-insurance costs, deductibles, and co-payments if the total expenses exceed 10 percent of your adjusted gross income (AGI).Get and Max Out Your Health Savings Account
A health savings account (HSA) enables you to reduce your medical costs, get a tax deduction for your contributions, and save for retirement. The AARP mentions that once you reach 55, you can make catch-up contributions of $1,000, which are also tax deductible. After you get enrolled in Medicare, you cannot make any more contributions to an HSA.Required Minimum Distributions
Before 2023, the age at which you must take required minimum distributions (RMDs) was 72. It was changed at the start of last year, letting you wait until you are 73. It also means that your RMDs will be larger than ever—and so will taxes on withdrawals from traditional IRAs and 401(k)s. Roth accounts no longer have RMDs.Reduce Taxes Through Charitable Contributions
If you have RMDs that you do not want or that will put you into a higher tax bracket, you may want to make a charitable contribution from your IRA. A qualified charitable distribution (QCD) can be made directly (it cannot come from you) to an approved charity from your retirement account, and you will not have to pay taxes on that amount. The amount of your QCD counts as part of your RMD. If you do not take an RMD when required, you will lose 25 percent of the money you should have withdrawn.Senior citizens can use the above methods and more to lower taxable income. Consulting with a financial advisor or estate planner can help you take advantage of the financial tools you need to keep more money and let you enjoy your retirement years even more.
