Lower Your Tax Bill: Top Tax Credits for Seniors

As we grow older, managing our finances becomes even more important, especially when it comes to taxes.

And while tax season may not be anyone’s favorite time of year, as a retiree, there’s good news: Uncle Sam has a soft spot for seniors. With a little know-how, you can take advantage of some tax credits for seniors that will help you lower your tax bill and keep more money in your pocket.

Let’s dive into the best tax deductions and strategies that can help you keep more of your nest egg:

Federal Tax Credits and Deductions

1- Increased Standard Deduction – When you hit 65, the IRS gives you a little extra love in the form of a higher standard deduction. For the 2024 tax year, single filers 65 or older can claim an additional $1,900, and married couples where at least one spouse is 65 or older get an extra $1,550.

• Why this matters: This higher deduction can significantly reduce the amount of your income that is subject to tax.

Actionable Tip: If you’re unsure whether to itemize or take the standard deduction, compare both options. In most cases, you’ll benefit more from the higher standard deduction.

2- Higher Filing Threshold – You benefit from a higher income threshold before you are required to file a tax return. For taxpayers aged 65 and older, the filing thresholds for 2024 are:

• $14,600 for single filers (compared to $13,850 for younger individuals)
• $29,200 for married couples filing jointly if both spouses are 65 or older

Actionable Tip: If your total income is close to the filing threshold, double-check whether you’re required to file. You may save time and effort if you’re not obligated to submit a return.

3- Retirement Savings Contributions Credit (Saver’s Credit) – Just because you’ve retired doesn’t mean you can’t keep saving. If you’re contributing to a retirement account like an IRA or 401(k), you might qualify for the Saver’s Credit.

Actionable Tip: Check the contribution limits and see if making additional deposits into a retirement account works for your financial situation.

Who says you’re too old for a piggy bank?

4- Social Security Tax Exemption – Depending on your total income, a portion of your Social Security benefits might be taxable. However, if your income falls below a certain threshold, you won’t pay taxes on these benefits.

• How it works:
  • If your combined income (adjusted gross income + nontaxable interest + ½ of your Social Security benefits) is below $25,000 for single filers or $32,000 for married couples, your Social Security benefits are tax-free.

Actionable Tip: Monitor your income sources, such as pensions, withdrawals from retirement accounts, and part-time work. If you’re close to the threshold, consider tax-advantaged accounts like Roth IRAs, which don’t count toward your taxable income.

5- Medical and Dental Expense Deductions – Healthcare costs often increase as you age. Luckily, the IRS allows you to deduct certain medical and dental expenses if they exceed 7.5% of your adjusted gross income (AGI).

• What can you deduct?
  • Doctor and dentist visits
  • Prescription medications
  • Health insurance premiums (including Medicare)
  • Long-term care expenses
  • Hearing aids, glasses, and medical equipment

Actionable Tip: Keep detailed records of your medical and dental expenses throughout the year. Even smaller expenses like mileage to and from doctor appointments can add up and count toward your deduction.

Yes, even your new set of dentures can help you “chew” down your tax bill!

6- Estate and Gift Tax Exemptions – Estate and gift taxes can be a concern if you plan to pass on your wealth to loved ones. However, there are generous exemptions in place:

• For 2024, the federal estate tax exemption is $13.6 million per individual.
• You can also gift up to $17,000 per year to as many people as you want without incurring gift tax.

Actionable Tip: Use the annual gift tax exemption to pass wealth to your children or grandchildren during your lifetime. This strategy reduces the size of your taxable estate while helping your loved ones.

7- Tax Credit for the Elderly or Disabled – This credit is designed specifically for you if you’re 65 or older, or if you’re retired on permanent disability with taxable disability income.

• Who qualifies?
  • You must meet income requirements and have adjusted gross income (AGI) below specific thresholds.
  • Your nontaxable Social Security or pension income also affects eligibility.

Actionable Tip: If you think you qualify, fill out Schedule R (Form 1040) when preparing your tax return. It’s a valuable credit that directly reduces the taxes you owe.

8- Charitable Contributions – If you’re the generous type, donating to your favorite charity could mean a tax break for you. Retirees who are 70½ or older can make Qualified Charitable Distributions (QCDs) directly from their IRAs, up to $100,000 per year. These contributions count toward your required minimum distribution (RMD) and aren’t included in your taxable income.

Actionable Tip: Use QCDs if you don’t need your RMD for living expenses—it’s a win-win for you and the charity. Make sure to consult with your financial advisor to explore how QCDs can reduce your tax burden while supporting your favorite causes.

State-Level Tax Breaks

1- Property Tax Exemptions – Many states offer property tax relief programs for seniors. These can include reductions, caps, or even exemptions based on age, income, or home value.

Actionable Tip: Check with your local tax assessor’s office to see if you qualify for a property tax exemption or reduction in your state.

2- Retirement Income Exemptions – Some states do not tax Social Security benefits, pensions, or withdrawals from retirement accounts. Others may provide partial exemptions based on income levels.

Actionable Tip: Look into your state’s tax policies on retirement income. If you’re considering relocating, compare state tax benefits for retirees.

3- Homestead Exemptions – Homestead exemptions can reduce the taxable value of your home, lowering property taxes for seniors.

Actionable Tip: Apply for a homestead exemption through your state’s tax office or website.

4- Additional State Credits – Some states offer unique credits or deductions for seniors, such as renter’s credits or sales tax refunds.

Actionable Tip: Visit your state’s tax department website or consult with a local tax professional to learn about all the benefits available in your area.

Bonus Tips for Simplifying Your Taxes

• Contribute to Health Savings Accounts (HSAs): If you’re not yet enrolled in Medicare, you can still contribute to an HSA and take advantage of tax-free savings for medical expenses.
• Reduce Capital Gains Tax on Home Sales: Downsizing? The IRS lets you exclude up to $250,000 in home sale gains ($500,000 if married) if you’ve lived there 2 of the past 5 years. It’s the only time in life when making a half-million dollars might not make your accountant sweat.
• Use Free Tax Assistance Services: Programs like the IRS’s Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) offer free tax help to seniors.
• Consult a Financial Advisor: A professional can help you identify all the tax breaks you’re eligible for and guide you through the process.

By understanding and taking advantage of these federal and state tax credits and deductions, you can reduce your tax burden and keep more of your hard-earned money.

Remember, a little planning goes a long way when it comes to making the most of your retirement income. Start exploring these benefits today to enjoy greater financial freedom and peace of mind.