When you reach age 65, the Internal Revenue Service will let you start using an extra standard deduction, which means you won't have to pay taxes on as much of your income after all. If you are single, have never been married, and do not have a spouse who has passed away, you will be able to increase the standard deduction you are ordinarily entitled to by an additional $1,700 for the tax year 2021, which corresponds to the tax return you will file in 2022. If you are married and file your taxes as a married couple, you may get an additional $1,350 for each partner age 65 or older. In 2022, the figures will be increased to $1,750 and $1,400, respectively.
Standard Deduction or Itemized Deductions
You can claim the standard deduction instead of itemizing your deductions; however, you cannot do both at the same time. And TCJA pretty much quadrupled the basic standard deductions for all filing statuses. This is the deduction you may claim before you claim the additional bonus deduction for age 65 or older, making it a rather tough choice.
Many taxpayers over the age of 65 may discover that their standard deduction, when combined with the additional standard deduction for age, results in a sum greater than any itemized expenses they are eligible to claim. This is especially likely to be the case if the taxpayers' mortgages have been paid off and they no longer qualify for an itemized interest deduction. But if you still have a mortgage and add in items like property taxes, medical bills, charity contributions, and any other deductible expenditures you may have, you can be eligible for a bigger itemized deduction. This is the case if you itemize your deductions.
A Higher Tax Filing Threshold
Because the filing threshold is normally equivalent to the standard deduction you are eligible to claim, the threshold at which you are required to submit a tax return is generally greater if you are age 65 or older. This is because the filing threshold increases as your age increases.
If you are 65 or older, you can increase your deduction to up to $14,250 because you must file tax returns once your earnings reach a certain threshold. In the tax year 2021, this threshold is set at $12,550, which is the standard deduction amount. If either you or your spouse is 65 or older and you file your taxes as a married couple, you and your partner's combined taxable income might be up to $26,450. Your potential tax savings might amount to $27,800 if both of you are 65 or older.
Taxable Social Security Income
Your payments from the Social Security Administration may or may not count as taxable income. It depends on how much money you make in total. Add up the money you make from all your income sources, including taxable retirement assets (those that Social Security doesn't provide) and interest that would ordinarily be free from taxation. After that, add fifty percent of the amount of Social Security payments you received during the course of the tax year. Around the start of the new year, SSA should give you a Form SSA-1099 that details the exact amount you were paid.
If the sum of all of your other incomes plus half of your Social Security is less than $25,000 and you are either single, the head of your household, or an eligible widow or widower, you are exempt from having to include any portion of your Social Security benefits as taxable income.
Tax Credits for Older Adults
The benefit for the elderly and the handicapped is one of the most important tax cuts that senior citizens are eligible for and may take advantage of. If you wind up owing money to the Internal Revenue Service, this tax credit may be able to cancel part or all of that debt. To qualify, you must be 65 years old or older as of the last day of the tax year.
If you were born on January 1 of the year that follows the one in which you are now living, you are regarded to be 65 years old at the end of the tax year in which you live. You must be a citizen of the United States or a resident alien to qualify for this benefit. If you are not a resident alien but are married to a citizen or resident alien, you may still be eligible for this benefit.
