Taxes probably rank pretty low in order of importance right now during the coronavirus pandemic. Timing when to file could work to your advantage if you have concerns about income, especially if you consider these 9 tax tips you may overlook if you’re over 50.
If you anticipate getting a refund, adhering to the April 15 deadline will get your refund to you more quickly. If you may owe the IRS, I suggest filing as soon as you can but holding out until July 15 to pay what is due. Keep that cash longer in your pocket instead.
When you do file, finding every possible avenue to decrease your tax liability is all the more important this year. To help, check out these lesser known tax tips for anyone age 50 and older.
1. Catch-Up Contributions to 401(k)
Contributing to your 401(k) maxes out each year for everyone. In 2019, that limit was $19,000 until the age 50. From that point on you can contribute an additional $6,000 as “catch-up” in preparations for retirement for a total annual contribution of $25,000.
2. Catch-Up Contributions to Traditional or Roth IRAs
Likewise, if you’re age 50 or older, you can also contribute an additional $1,000 to either for a total of $7,000. The underage set can only sock away a total of $6,000. By the way, you must withdraw required minimum distribution (RMDs) by age 70.5. BUT, if you donate that amount to charity, you don’t have to pay a dime of taxes on it. However, if your 70th birthday is July 1, 2019 or later, you do not have to begin your RMD until the age of 72.
3. Health Savings Account Contributions
It’s a fact of life. The older we get, the greater the likelihood we will need increased care. HSAs provide a tax-deductible way to save for these inevitable expenses, allowing single taxpayers over the age of 55 to put away $4,500 and $8,000 for families.
4. Drawing down Cash from 401(k) Retirement Funds
If you’re over the age of 59 ½ (yes, we start counting half-birthdays from here on out), congratulations! You’ll no longer pay a 10 percent penalty for withdrawing funds from your retirement accounts. Bonus: among various exceptions to the 10 percent penalty, if you’re over the age of 55 and leave a job, you can start receiving distributions immediately from your 401(k).
5. Lifelong learning credits
While not only for the 50+ crowd, the Lifetime Learning credit can be claimed for you or your spouse for more than four years. The credit, worth up to $2,000 annually, can be claimed for education expenses that lead to new or improved skills. Again, this credit has modified adjusted gross income restrictions, phasing out between $58,000-$68,000 for singles and $116,000-$136,000 for married couples.
6. 529 Education Plans
Similarly, grandparents can finance education costs for their grandkids and score a tax break for 529 plans. Once meant only for eligible colleges and universities, 529 plans now cover K-12 expenses for any public, private or religious institution.
7. Increase you Standard Deduction
If you’re over the age of 65, you automatically qualify for a larger standard deduction. How much? The standard deduction in 2019 for those over age 65 increased by $1,650 for single households; if you and your spouse file jointing and are both over age 65, you can add a total of $2,600. (Caveat: your standard deduction could be reduced is someone else claims you as a dependent.)
8. Medical and Dental Expenses
If your unreimbursed medical bills account for more than 10.0 percent of your adjusted gross income – and you itemize your deductions – you may be able to deduct some or all of those expenses. This also applies to buying long-term care insurance, which, depending on your age, could add up to more than $5,400.
9. Tax Credit for Elderly or Disabled Care
Finally, you may qualify for the tax credit for the Elderly or for the Disabled. To qualify, you must either be 65 or older or retired on permanent and total disability with taxable disability income. A reminder: this credit as strict income limits.
Of course, this list of tax tips provides just a sampling of the many additional perks of being a “Boomer.” The IRS helpfully offers this “simple” guide to understanding all the tax breaks for older Americans. Our office can help break down the guide for you and find additional avenues to pay the lowest taxes possible. To learn more, call our office at 724-216-5180 or use our online form.