Tax Counseling for Seniors and the Elderly (2024)

When you enter retirement and begin reducing your income from work, it becomes vital that you take advantage of every tax break available to you. Doing so will stretch your nest egg for as long as possible and help cover life's expenses.

Use this tax counseling for seniors and the elderly guide to learn everything you need to know about taxes, credits, and deductions that you may be eligible for.

Who qualifies as a retiree vs. a senior?

Although "retiree" and "senior" are often used interchangeably, the tax code has specific definitions used for evaluating your eligibility for tax breaks:

• Retirees: The term "retiree" has no legal meaning in the tax code unless it gets accompanied by a disability. In this case, it means you're retired and unable to work due to a disability.
• Seniors: Individuals who turn 65 during the tax year are considered seniors. If you're part of this category, you qualify for any tax breaks reserved exclusively for seniors.
• If you're under age 65 and you aren't disabled, you won't qualify for the tax deductions available to seniors. This may often be the case as you can retire at any age.

What tax options are available to seniors?

As a senior, you can claim a number of tax benefits, whether in the form of deductions, credits, or exemptions.

Tax deductions work similarly to exemptions. Both help lower your taxable income, while tax credits lower your tax liability dollar-for-dollar. All things equal, tax credits typically provide more bang for your buck.

Deductions

The first automatic tax benefit of being a senior comes from a larger standard deduction. After turning 65, the IRS offers you an additional amount on your standard deduction.

• Single filers 64 and younger typically receive $13,850 in 2023, while single filers 65 and older get $15,700 in 2023.
• This extra $1,850 makes it even more likely that you'll claim the standard deduction than choose to itemize, simplifying your tax return preparation process.
• If you fall in the 22% tax bracket, this can save you up to $407 per year in taxes.
• If you're married and only one of you is 65 or older, you only get an extra $1,500, or $3,000 if you're both 65 or older in 2023.

Depending on your situation, you might also be able to continue contributing to your individual retirement accounts (IRAs) after retiring, acting as another tax deduction.

• This requires you to have earned income for the year of contribution.
• If your spouse continues to work, they can contribute up to $7,500 ($6,500 + $1,000 in catch-up contributions) into an account in your name in 2023. IRA contribution limits for 2024 increase to $7,000 plus the $1,000 catch-up contribution for a total of $8,000.
• This requires your spouse to have enough earned income to contribute to your account as well as their own if desired.

Credits

If you're age 65 or older at the end of the tax year (or you're under age 65 and retired on permanent and total disability with disability income), you may qualify for the Tax Credit for the Elderly or Disabled.

This credit allows you to offset some of your tax liability, and your income must fall within certain limits. TurboTax can handle the necessary calculations for you and tell you how much credit you qualify to receive. Further, it will tell you all the applicable income limits for all tax breaks for senior and the elderly.

Exemptions

Personal exemptions for federal taxes went away with the Tax Cuts and Jobs Act for tax years 2018 through 2025. But some states offer tax exemptions on certain types of retirement income or your property taxes.

TurboTax Tip: If you require assistance preparing your return, you may qualify to participate in the IRS's Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly programs, which offer free tax help.

How can seniors manage their IRAs and RMDs?

Deferring taxes on your retirement savings doesn't last forever. In the past, seniors needed to begin taking distributions from retirement accounts at age 70 1/2.

Now, after the SECURE Act, you must generally start taking distributions beginning in the year you turn 72, or 73 if you reach age 72 after December 31, 2022. These mandatory distributions are called required minimum distributions (RMDs). The law requires you to take a minimum amount of money out by April 1 of the year after you turn 72 and then make annual distributions by December 31 of each year.

Two exceptions exist to this rule with the first only applying to 2020:

1. The CARES Act temporarily suspended RMDs on account of the market volatility due to the COVID-19 pandemic, allowing seniors to keep money in their accounts for longer.
2. If you're still working at age 73 or beyond and have a 401(k), you might not need to withdraw your 401(k) funds from your current employer-sponsored plan until you stop working for that employer.

If you invested in a traditional IRA, however, you'll still need to take annual distributions despite continuing to work. If you have a Roth IRA and have made after-tax contributions, you won't ever need to withdraw money from your account during your lifetime.

Required minimum distributions work by basing your distribution on your account balance and then accounting for a life expectancy factor set by IRS in Publication 590.

You divide your account balance by this factor to arrive at your RMD amount. Failing to take your full RMD can result in a major penalty — 50% of the amount you failed to withdraw.

You can always take out more than the minimum required amount from your account, but you'll likely pay taxes at your marginal income bracket on your withdrawals. To make life simpler, you can ask the custodian of your retirement account to withhold taxes from your distributions. This will send in tax payments on your behalf and hopefully prevent a surprise tax bill when you prepare your taxes in April.

Are there property tax breaks for seniors?

Some states offer tax breaks for seniors by offering a number of different items. Examples can include exempting you from paying property taxes up to a certain threshold, "freezing" your property tax bill, or delaying your property tax payment.

When considering a move to another state with lower taxes, make sure you look at the overall tax burden. Just because a state offers property tax exemptions or doesn't have an income tax doesn't mean you might not pay more overall through other taxes.

Make sure you look at the fine print for how to qualify for these property tax breaks, whether they're exemptions, credits, rate freezes, or deferrals. They may come with different restrictions and qualifications based on age, income, length of residence, or more.

Are there special tax forms or support for seniors?

After turning 65, you can begin filing your tax return with Form 1040-SR , a form specifically designed for senior filers.

If you prepare your returns by hand, this can assist with your preparation by using a larger font and having the standard deduction information directly on the form. Otherwise, Form 1040-SR remains identical to Form 1040.

If you require assistance preparing your return, you may qualify to participate in the IRS's Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly programs, which offer free tax help.