December 3, 2020 —As the year ends, it’s a good idea to start thinking about your taxes. Taxes aren’t anyone’s favorite topic but being informed and aware of requirements, which can be different for seniors and retirees, could save you time and money in your annual tax filing. While not a substitute for professional tax advice, these senior tax tips can help you understand what your tax obligations may be as you look ahead and prepare for 2021.
You may not have to file
Most people have to file income taxes; however, if you are over 65, you may be exempt, depending on your gross income. For example, the maximum a person over 65 could earn and not file income taxes was $12,200. The income limits change often so you should verify whether you are above or below the cutoff for filing each year. Even if you aren’t working, you may still have to pay taxes. In some cases, you may have to pay federal income taxes on Social Security benefits if you have additional income that is substantial.
You may be able to file for free
Seniors and retirees whose income is under $69,000 a year may be able to file for free. The IRS offers “Free File” for free online tax preparation and electronic filing. Free File features 10 brand-name tax software providers and also offers the new Form 1040-SR option, a special form that makes it easier to report income from other sources common to seniors such as investment income, Social Security and distributions from qualified retirement plans, annuities or similar deferred-payment arrangements.
Not all income is “earned” income
Examples of earned income are wages; salaries; tips; and other taxable employee compensation. Earned income also includes net earnings from self-employment and sometimes disability benefits. Earned income may impact not only your taxes but your Social Security benefits until you reach your full retirement age, which is based on your birth year.
Unearned income includes investment income such as taxable interest, ordinary dividends, and capital gain distributions. It also includes unemployment compensation, taxable social security benefits, pensions, annuities, and distributions of income from a trust.
Seniors can get special tax breaks
If you must file a tax return, there are ways you can reduce the amount of tax you have to pay. As long as you are at least 65 years old and your income from sources other than Social Security benefits is not high, then the tax credit for the elderly or disabled may reduce your tax bill. Also, most municipalities offer property tax breaks for seniors that cap or reduce your property taxes. You may also be eligible for other income tax deductions for retirees based on your health or dental care expenses, charitable contributions, the sale of your home, college savings accounts for grandchildren, or business expenses. Measures intended as tax relief for seniors may change periodically, so make sure you’re up to date on the benefits that may be available to you before you file your taxes next spring.
Your retirement plans matter to your financial health
The Admiral the Lake is the smart move for financially-savvy seniors. Here, your senior living costs are controlled. Our dining services featuring gourmet cuisine, all maintenance, utilities, housekeeping, and many other benefits are included in your monthly service fee. And there are often meaningful tax strategies and deductions unique to residency at a non-profit like The Admiral at the Lake.
Request a tour to learn more and see all The Admiral at the Lake has to offer.
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The journey to selecting the right retirement option for you is a highly personal one. Schedule a tour to see all that The Admiral at the Lake’s active senior living community has to offer.