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What happens to the maxim? With age… new ways to save on taxes.
Retiring doesn’t stop you from filing taxes, but being retired often means you can claim valuable tax credits and deductions.
In some cases, these tax benefits are available to both workers and retirees, so retirees are often unaware that they qualify. In other cases, these tax benefits are effectively reserved for older taxpayers, who may not be made aware of it until later in life.
Here are some examples of federal income tax cuts that retirees often overlook.
1. Greater Standard Deduction
For seniors who do not itemize tax credits, higher standard deduction We may be able to reduce your tax amount for free.
Seniors typically receive an increase of $1,400 per married person or $1,750 per single person over the normal standard deduction.
For example, two married seniors will have an extra $2,800 deducted from their taxable income. No need to work or keep receipts. What the savings actually translate into depends on your income, but that means the starting number Uncle Sam taxes them on is low.
2. Savers credit
What’s better than a tax deduction? Tax deduction! A deduction lowers your taxable income, while a deduction reduces your tax amount by the dollar.
Saver credits aren’t just for retirees, so they can be easily overlooked. But it’s for eligible taxpayers who keep money in retirement accounts.
Therefore, every year as long as you are contributing to your retirement plan, you should verify your saver credit eligibility. If eligible, he can reduce taxes by up to $1,000, or $2,000 for married taxpayers filing joint returns.
The main eligibility requirement, other than saving money in a retirement account, is income below certain thresholds. This is detailed in “Few Baby Boomers Know This Retirement Tax Credit Exists.”
3. Health insurance deduction
If you are self-employed, you may be able to deduct Medicare and other health insurance plan premiums as business expenses. According to the National Tax Agency:
“You may be able to deduct medical, dental, and qualified nursing care insurance amounts you pay for yourself, your spouse, and your dependents. Any Medicare premiums you voluntarily pay to do so can be used to calculate your deductible.”
For example, the standard monthly premium for Medicare Part B in 2023 is $164.90 per month, which could result in $1,968 in amortization.
4. Contributions to traditional IRAs
A federal law known as the SECURE Act of 2019 eliminated the maximum age for contributions to traditional Individual Retirement Accounts (IRAs).
So From tax year 2020 onwardsRetirees who earn income from part-time jobs, etc., can save money in this type of account regardless of age.
There is no age limit for contributions to a Roth IRA, but contributions to this type of account are not deductible on your tax return. Instead, you can withdraw money tax-free, provided you follow the IRS rules for Roth accounts. (Under a traditional IRA, withdrawals are considered taxable income.)
For more information on these two types of accounts, see 8 Ways to Maximize Your Traditional or Loss IRA.
5. Spousal Contributions to Traditional IRAs
You can only contribute to your Individual Retirement Account (IRA) if you have wages or other income, which could be your spouse’s income.
This means you can help your working spouse put money in your retirement account, as detailed in 7 Secret Benefits of a Personal Retirement Account.
Contributions made by a spouse to a traditional IRA are also tax deductible, assuming they meet the eligibility requirements.
6. Eligible Charitable Distributions
In general, taxpayers should itemize the deductible amount if they want credit for charitable donations, rather than claiming the standard deductible amount. And after the Federal Tax Cuts and Jobs Act of 2017 was enacted, the standard deduction was larger and fewer people benefited from itemization.
However, some retirees may be able to effectively avoid this.
rear 70 and a half, you can send money from your IRA to charity without counting it as taxable income. The IRS calls this “qualified charitable distribution” or QCD.
While this is not a true tax credit or deduction, it still has the effect of lowering your taxable income. Also, if he makes a QCD after reaching the RMD age (currently 73 to he is 75 depending on when he was born), the amount of that QCD will count towards the Minimum Distribution (RMD) required for that year. he said the IRS.