Retirees over 65 often face inevitable financial challenges as they have to juggle between covering life expenses and fulfilling their tax obligations.
Luckily, one of the advantages of getting older is the opportunity to take a break from taxes. From standard tax deductions to state income tax subsidies, these tax deductions can provide some financial relief to seniors, especially those stretching out their limited savings to cover expenses that may arise for the rest of their lives.
Explore 7 tax forgiveness options for seniors so your parents can maximize their income and enjoy a more fulfilling retirement life.
Tax Forgiveness Ideas for Seniors: 7 Tax-Saving Opportunities Seniors Don’t Want to Miss
7 Tax Forgiveness Options for Seniors
Equipping yourself with knowledge and taking advantage of the right tax-deduction programs can help you and your parents avoid tax burdens, maximize income, and make informed decisions about finances when setting budget plans for the future. Here are the top 7 tax forgiveness ideas for seniors you need to know.
Social Security Tax Exemption
Is Social Security taxable? It depends. Earnings from the social insurance program are not often subject to tax if an individual earns below $25,000 per year.
The Internal Revenue Service (IRS) calculates the total combined income by adding adjusted gross income (AGI) and other sources of taxable income, such as qualified retirement accounts, required minimum distributions (RMDs), interest, dividends, self-employed wages, and other assets.
Tax rates applied are categorized as individual and married tax rates.
Social Security Individual Tax Rates
If the benefits are between $25,000 and $34,000, you will be only taxed on 50% of the received benefits. The taxable percentage for total income exceeding $34,000 will increase to 85%.
Social Security Married Tax Rates
If the combined earnings of a double-income household fall between $32,000 and $44,000, the taxable amount will be computed at half of the benefits. If a couple earns over $44,000 annually, 85% of their benefits will be taxed.
Standard Tax Deduction
Suppose your parents are over 65 and don’t own a business or itemize complicated business deductions. In that case, the standard tax deduction is the way to go, as the IRS provides higher standard deductions to all seniors once they reach the ripe age of 65. This strategy includes two options: the standard deduction or itemized deductions.
The standard deduction allows you to deduct a fixed amount from your taxable income, reducing federal income tax. Factors such as filing status, household status, and age reflect the deducted amount. The IRS makes adjustments to the standard deduction for inflation annually.
2023 Standard Deduction Amounts for Each Filing Type
|Filing Status||2023 Standard Tax Deduction Amount|
|Head of household||$20,800|
|Married filing jointly||$27,700|
|Married filing separately||$13,850|
|Qualifying widow or widower||$13,850|
Multiple Filing Threshold
The filing threshold is the minimum amount a taxpayer must earn before filing an income tax return with the IRS. Although not everyone is obligated to file a return, it is worth considering since you may be qualified to claim a tax refund.
Several factors can influence a person’s filing threshold, with filing status playing the most significant role in determining their eligibility. Filing status includes categories such as seniors over 65, single individuals, head of household, married filing jointly or separately, and widows with dependent children.
2022 Filing Threshold for Different Filing-Status Taxpayers
|Filing Status||Age at the end of the year||Gross Income|
|65 or older||$14,700|
|Head of Household||Under 65||$19,400|
|65 or older||$21,150|
|Married Filing Jointly||Under 65 (both spouses)||$25,900|
|65 or older (one spouse)||$27,300|
|65 or older (both spouses)||$28,700|
|Married Filing Separately||Any age||$5|
|Widow(er) with Dependent Child||Under 65||$25,900|
|65 or older||$27,300|
Medical & Dental Costs
The older your parents get, the more health maintenance and attention they require. Given the United States skyrocketing healthcare, medical expenses can chip away at your parents’ savings. While your parents may have already had Medicare and other insurance policies in place to avoid worst-case scenarios, these health plans sometimes may not always be enough.
Since out-of-pocket costs and copayments can accumulate up to thousands of dollars, it is crucial to be aware that any medical expenses over 7.5% of the adjusted gross income may be deductible. Here are some examples of medical items and services your parents may be able to deduct:
- Prosthetic limbs
- Prescription drugs
- Chiropractor and acupuncture
- Therapy or rehabilitation services
- Psychiatric care
- Home modifications for disabilities
- Dental care and denture
- Vision care, eyeglass prescription, and surgeries
- Hearing tests and aids
- Insulin medications
- Senior care costs (adult day services, in-home care)
- Car or transportation to receive medical care
- Wheelchairs or crutches
Retirement Account Contributions
Making tax deductions through retirement accounts is another tax forgiveness idea for seniors, whether your parents have already left the workforce or are close to retirement age.
Contributions to retirement accounts during working years are often tax deductible, and the interest accumulated is tax-deferred. Most retirees can take away a partial contribution from their taxable income.
Since this deduction can be complicated, be sure to touch base with a banker or a tax professional to see the exact amount your parents may qualify for.
State Income Tax Subsidies for Seniors
In addition to nationwide federal taxes, state income taxes are another obligation most seniors face.
Fortunately, all states offer a wide, sustainable selection of tax income subsidies for seniors, with 32 states canceling income tax for seniors entirely, even those from wealthy households.
For example, all senior homeowners qualify for a $40,000 residence homestead exemption based on their home’s value for school district taxes, followed by another $10,000 for seniors over 65 or disabled. Tennessee, Arizona, and Colorado do not apply tax on estate or inheritance.
Check here for more information about state-by-state income tax subsidies.
Selling a House
Once your parents finish their transition to senior units or communities, selling a house is inevitable. While the profits from selling their house are not excluded from taxes, there are kinds of deductions available you may claim following the sale.
Be sure to check with your real estate agent and tax professional to see which portions of the sale deed are deductible. You may be able to claim significant property taxes if you have lived in the house for at least two out of the last five years before putting the house on the market.
The profit of up to $250,000 for single taxpayers and $500,000 for married couples filing jointly is not taxed. Other deductions you can claim are legal fees and maintenance and improvement costs.
If you have questions about tax forgiveness for seniors or any topics discussed here, connect with us and learn more.
At 12 Oaks, our team of caring professionals is dedicated to keeping residents safe, engaged, and connected to their families and friends while leading fulfilling lives. 12 Oaks senior living communities are an ideal place to enjoy the encore season of life.
For questions or to schedule a personalized tour, don’t hesitate to contact us.
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