Once you turn 50, and especially after age 65, or are retired, you can qualify for tax benefits to help minimize your tax burden. If you or a loved one fall into these categories, here are seven of the most important tax deductions to use to your advantage:
1. Larger Standard Deduction
If you and/or your spouse are 65 years old or older and you do not itemize your deductions, you can take advantage of a higher standard deduction amount.
2. Credit for Elderly or Disabled
If you and/or your spouse are either 65 years or older–or under age 65 years old and are permanently and totally disabled–you may be able to take the Credit for Elderly or Disabled. The Credit is based on your age, filing status, and income.
3. Medical and Dental Expenses Deduction
The Tax Reform and Jobs Act of 2017, changed the AGI threshold for medical expenses from 10% to 7.5% for 2017 and 2018 for all taxpayers.The medical expense tax deduction covers the cost of insurance premiums, including Medicare, and even long-term care insurance premiums. Virtually all medically necessary costs prescribed by a physician are tax deductible. The primary exclusions are non-prescription, over-the-counter drugs and expenses which are more cosmetic in nature, like teeth whitening. Contact our office for more clarity.
4. Higher HSA contribution limit
Workers with high-deductible health plans can claim a tax deduction on contributions to a health savings account. HSA limits are $3,500 if single or $7,000 for family, but you can add an additional $1,000 into your account if you are over 50.
5. Retirement account limits
For 2019, the IRS increased the amount you can squirrel away in your 401(k), 403(b) and most government plans. Once you reach 50, a $6,000 “catch up” contribution is available or $22,500 into your 401(k) in 2019.
6. Early Withdrawal penalty eliminated
If you withdraw money from an IRA account before age 59.5 you generally must pay a 10 percent penalty (there are exceptions–call for details); however, once you reach age 59.5, there is no longer a penalty for early withdrawal. Also, once you reach 70.5, you will be required to take a minimum distribution based on the amount in the plan and your age. You might want to start taking some distributions at 59.5 to avoid being bumped up into a higher tax bracket once you reach this age.
7. Social Security Benefits
Americans can sign up for social security benefits as early as age 62–or wait to receive full benefits at age 66 or 67 (depending on your full retirement age). For some older Americans however, social security benefits may be taxable. How much of your income is taxed depends on the amount of your benefits plus any other income you receive. You can receive even more if you wait until 70.
Avoid missing out on deductions. Contact our office to ensure you are taking advantage of the perks of aging and understand what’s a deduction and not. Call us today.