There are many things that get better with age—wisdom, wine, antiques and solid investments, to name a few. However one of the lesser known advantages for older Americans are the number of IRS deductions and credits that are available to them. NerdWallet and Kiplinger have compiled a list of tax deductions and tax-advantaged credits available to retirees:
Fatten your nest egg – Seniors over 50 can contribute up to $24,000 annually to a 401(k), which are tax-advantaged, versus the $18,000 limit for those under 50.
Those with an estate tax can forget about gift taxes – There’s few Americans who have a credit large enough to pass up to $5,450,000 to their heirs in 2016 (that’s double the amount for married couples). However, if the estate tax may be in your future, the IRS will allow you to give up to $14,000 each year to people without worrying about the gift tax.
Sell your house – This one is for people of all ages: The IRS allows single taxpayers to exclude from their income $250,000 of capital gains if they sell their house and $500,000 for married couples. There are a few requirements, though: - The house has to be your primary residence - You must have owned the house for at least two years and lived in it, although not necessarily consecutively, for two out of five years before the sale
Deduct Medicare premiums – Those who become self-employed and then leave their job can deduct premiums for Medicare Part B and Part D, as well as the cost of supplemental Medicare or a Medicare Advantage plan. For retirees over age 65, the deduction is not subject to the 7.5%-of-AGI test that applies to itemized medical expenses. Keep in mind that this deduction is available to those eligible for an employer-subsidized health plan.
Gain a tax credit for permanently disabled persons – The Credit for the Elderly or the Disabled permits a tax credit of $7,500 for people age 65+ who retired on permanent and total disability. For those under 65, the credit ranges from $3,750 to $5,000. According to NerdWallet.com, the tax credit is nonrefundable, which means it counts towards owed taxes, but if the tax bill is $0, the IRS won’t be sending a check.
Choose standard deduction over itemizing - The decision to take the standard deduction—a dollar amount that taxpayers can subtract from their income and is based on a filing status— instead of itemizing can save retirees up to $1,500 if at least one of two spouses is 65 or older.
Take advantage of a standard deduction for legally blind persons – For retirees who are blind or have a blind spouse, their standard deduction can increase an additional $1,250.
Have hefty medical expenses reimbursed – If you chose to itemize instead, there’s still good news: unreimbursed medical expenses that exceed 10% of your adjusted gross income can be deducted. There’s an even lower threshold of 7.5% if at least one spouse is 65 or older.