Age and wisdom, it is said, triumphs over youth and enthusiasm. With every passing day, I hope that is true!
One thing, however, I do know about getting older. It offers some tax advantages not available to younger filers.
Today's Daily Tax Tip actually is a look at four tax breaks just for us older folks. Don't feel left out. You'll get to join our august group one day!
1. Contribute more to retirement accounts
As long as you're earning money, you can contribute to your Roth or until you turn 70½ to your traditional IRA. And as an older earner, you can boost how much you put into your retirement accounts.
When you turn 50, not only do you get an invitation to join AARP, you also get to make catch-up contributions to your traditional or Roth IRA. You can put in an extra $1,000 for the 2013 tax year; remember, you can make a tax year 2013 contribution to your IRA by this year's April 15 filing deadline. Then you can put in $1,000 extra for the 2014 tax year.
Catch-up contributions of $5,500 for both 2013 and 2014 also are available for workplace retirement plans, such as 401(k)s, 403(b)s and 457(b)s. If you have a SIMPLE IRA or 401(k), the catch-up amount for both tax years is $2,500.
2. Meet a smaller medical deduction threshold
With age come aches and sometimes more serious medical concerns. Older individuals who tend to have higher medical expenses get a break here.
Beginning in 2013, the Affordable Care Act bumped up the medical expenses amount required to deduct them on Schedule A from 7.5 percent to 10 percent of adjusted gross income (AGI). That higher threshold, however, doesn't apply to taxpayers age 65 or older. They still need expenses exceeding only 7.5 percent of AGI.
Among the costs that older filers can count to get more than 7.5 percent of AGI in expenses are health insurance premiums (including Medicare part B and part D), long-term care insurance premiums, nursing home care and prescription drugs.
Enjoy it while you can. This lower threshold for older filers is in effect through the 2016 tax year. On Jan. 1, 2017, the 10 percent medical expenses itemized deduction threshold will apply to all taxpayers regardless of age.
3. Claim a larger standard deduction
Most of the time, older folks don't itemize because they've paid off their home mortgages (one of the biggest Schedule A expenses) or have sold their homes and moved into rental retirement communities.
When older folks are required to file taxes, they join the majority of taxpayers in claiming the standard deduction. And for those age 65 or older, that's a larger amount than allowed younger taxpayers.
The beauty here is that to get the larger deduction amount, all older filers have to do is check the box on Form 1040 (line 39a) or Form 1040A (line 23a). For 2013 returns, the effective birth dates that produce a larger standard deduction are those before Jan. 2, 1949.
The credit applies separately to each spouse, so if both you and your husband or wife meet the age requirement, it will bump up your standard deduction even more.
A single 65-or-older filer, for example, will get a standard deduction of $7,600 instead of $6,100. A jointly filing married couple where each spouse is 65 or older will get a standard deduction of $14,600 instead of $12,200.
The chart in the Form 1040 or 1040A instructions offers the amounts for various numbers of boxes checked and filing statuses.
4. Claim the tax credit for the elderly
You can claim this federal income tax credit simply for being age 65 or older at the end of the tax year as long as you meet the income limits.
Yes, limits plural. To determine if you can claim the credit, you must consider two income amounts.
The first is your AGI, noted in the table below.
|If your filing status is...||You cannot take the credit for the elderly if:|
|Your adjusted gross income (AGI)* is equal to or more than...||OR the total of your nontaxable social security and other nontaxable pension(s), annuities, or disability income is equal to or more than...|
|single, head of household, or qualifying widow(er) with dependent child||$17,500||$5,000|
|married filing jointly and only one spouse qualifies in Figure 5-A||$20,000||$5,000|
|married filing jointly and both spouses qualify in Figure 5-A||$25,000||$7,500|
|married filing separately and you lived apart from your spouse for all of 2013||$12,500||$3,750|
|*AGI is the amount on Form 1040A, line 22, or Form 1040, line 38|
The second limit is the amount of nontaxable Social Security and other nontaxable pensions, annuities or disability income you received. Details are in IRS Publication 524, Credit for the Elderly or the Disabled.
IRS Publication 554, Tax Guide for Seniors, also has information on the credit for the elderly and other tax issues of note for older filers.
So enjoy getting older and wiser, along with the tax breaks your graying hair brings.
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