Tackling Tax Season: Tips for Older Adults

It’s that time of year again — checking the mail for necessary paperwork, digging through boxes for crinkled up receipts and spending hours organizing materials and figuring out the best way to file your taxes. It’s a stressful season for many folks — and one that is not made any easier as we get older.

According to the IRS, it’s not uncommon for people to make errors when preparing their tax returns. Maximizing one’s income is more important than ever for those who are retired and on fixed incomes. Here, we highlight some tips, tax credits and deductions older adults can utilize to tackle tax season.

IRA Contributions

Those who are 50 or older can contribute $1,000 more to their traditional and Roth Individual Retirement Accounts (IRAs), making the maximum contribution for the 2022 tax year $7,000. Your traditional IRA contributions may be tax-deductible. The deduction may be limited if you or your spouse is covered by a retirement plan at work and your income exceeds certain levels. For 2020 and later, there is no age limit on making regular contributions to traditional or Roth IRAs.

401(k) Catch-up Contributions

If you are at least 50, you can make annual catch-up contributions up to $6,500 for the 2022 tax year ($7,500 in 2023). Contributions may be permitted by these plans: 401(k) — other than a Savings Incentive Match Plan for Employees (SIMPLE) 401(k) — , 403(b), SARSEP and governmental 457(b). A SIMPLE IRA or SIMPLE 401(k) plan may permit annual catch-up contributions up to $3,000 in 2022 ($3,500 in 2023). Salary reduction contributions in a SIMPLE IRA plan are not treated as catch-up contributions until they exceed $14,000 in 2022 ($15,500 in 2023). Employees with at least 15 years of service may be eligible to make additional contributions to a 403(b) plan in addition to the regular catch-up for participants who are at least 50. The age restriction for contributions to a traditional IRA has been eliminated.

HSA Contributions

Those who are at least 55 can increase their Health Savings Account (HSA) contribution limit up to $1,000 per year. This extra amount is the catch-up contribution allowed for HSAs. These contributions are tax-exempt and can be used for most medical expenses. There are no income qualifications for an HSA, but you must be enrolled in a High Deductible Health Insurance Plan (HDHP).

Standard Deduction for Seniors

If you do not itemize your deductions, you can get a higher standard deduction amount if you and/or your spouse are at least 65. You can get an even higher standard deduction amount if either of you are blind. For many older adults, the standard deduction plus the extra standard deduction may be more than any itemized deductions you could claim, especially if your mortgages have been paid off. However, you may benefit more from itemizing if you have a mortgage, pay property tax, have significant medical bills or make large charitable donations. For 2022, the standard deduction amount has been increased for all filers.

Credit for Elderly or Disabled

This credit is based on age, filing status and income. You may be eligible to take the credit if you and/or your spouse are either 65 years or older, or under 65 years old and are permanently and totally disabled and your income isn’t more than certain limits.

Child and Dependent Care Credit

You may be able to claim this credit if you pay someone to care for your dependent who is under 13 or for your spouse or dependent who isn’t able to care for themselves. The credit can be up to 35% of your expenses.

Earned Income Credit (EIC)

The EIC is a refundable tax credit for certain people who work and have earned income under $59,187. The EIC is available to people with or without a qualifying child.

Mandatory Distributions

Those who reached age 70.5 on Jan. 1, 2022, or later may delay distributions until April 1 of the year following the year in which they turn age 72.

Form 1040-SR

Form 1040-SR, U.S. Tax Return for Seniors, was introduced in 2019. You can use this form if you were 65 or older at the end of 2022. The form generally mirrors Form 1040, but it has larger text and some helpful tips for older taxpayers.

Filing Threshold

The filing threshold is the income you must earn before being required to file a tax return. Single filers under 65 must file a return when their income exceeds $12,400. Adults older than 65 don’t have to file a return until their income exceeds $14,050. Married filers over 65 do not need to file a joint return unless their income exceeds $27,400.

Social Security

If your sole or primary income source is Social Security or pension, this may mean you do not have to file a return at all. If you file as an individual and your Social Security and other earnings total less than $25,000 per year, you may not have to pay federal income taxes. If your Social Security and other earnings are between $25,000 and $34,000, you only have to pay income tax on half of your benefits. For married people filing jointly, the threshold for paying any taxes on Social Security benefits is $32,000. If you jointly earn between $32,000 and $44,000, you only have to pay taxes on 50% of your benefits. For individuals or couples who exceed the 50% earning threshold, 85% of benefits become taxable. When preparing your return, be careful when you calculate the taxable amount of your Social Security. The IRA suggests you use the Social Security benefits worksheet and then double-check it before you fill out your tax return.

Charitable Deductions

IRA owners 70.5 or older can transfer up to $100,000 to charity tax-free each year. These transfers are known as Qualified Charitable Distributions (QCDs). For those who are at least 72, QCDs count toward the IRA owner’s Required Minimum Distribution (RMD) for the year. Be aware that if you itemize your deductions, you cannot also claim the tax-free transfer as charitable deductions on Schedule A.

Estate and Gift Tax

You can give up to $12 million to your heirs without any penalty per estate law. This increases to $12.9 in 2023. You also can consider an annual gift tax exclusion, which allows you to give up to $16,000 each year to your heirs without paying a gift tax. This will increase to $17,000 in 2023. This rule lets you gift this amount annually to any number of people.

Property Tax Exemptions

Many states and cities give those who are 65 and older special exemptions on the value of their homes. These exemptions vary depending on where you live. Typically, there are stipulations on how long you must have lived at the property, and the property must be in your name.

State Senior Tax Exemptions

You may also have to file and pay state income taxes. State rules vary greatly, and the state in which you live can impact your tax liability. Many states offer special tax benefits to older adults. Thirty-three states do not collect an estate or inheritance tax, and seven states have no income tax. Meanwhile, only 11 states tax Social Security benefits.

Preparing and filing your tax returns can be a complicated and stressful process. The Volunteer Income Tax Assistance (VITA) program offers free tax help to people with low-to-moderate incomes, persons with disabilities and limited-English speaking taxpayers who need help preparing their own tax returns. In addition, the Tax Counseling for the Elderly (TCE) program offers free tax help for all taxpayers, particularly those who are at least 60. TCE volunteers specialize in answering questions about pensions and retirement-related issues unique to older adults.

Experience Hassle-Free Aging With Upside

Planning for a smooth tax season, as well as your financial future, can be one of the most difficult things you ever experience. At Upside, we understand the difficulties you’ll be facing and are dedicated to removing the barriers that prevent you or a loved one from living a stress-free, elevated lifestyle. Speak to an Upside Manager today to discover our expertise in creating an all-inclusive housing experience for older adults.

Upside Corporate Headquarters

6365 NW 6TH Way, Suite 200

Fort Lauderdale, FL 33309