As you grow older, it becomes more and more important to have your finances in order so you don’t have to work anymore and you can comfortably enter retirement. One of the biggest issues for many seniors and retirees is that they will often have to live on a fixed income, which has many disadvantages. Fortunately, there are steps that can be taken in order to alleviate some of the financial stress from senior citizens and retirees. Some of these savings come in the form of tax breaks which are offered by the Internal Revenue Service (IRS) for individuals who are getting into their senior years.
Although you many seniors do not immediately think about taxes when preparing for retirement, it can be incredibly helpful to plan in order to be financially ready for the future. When senior citizens and retirees are budgeting for their retirement, it is essential to consider how much money will be paid to the IRS each year. Here are some helpful ways for seniors and retirees to save on their taxes.
Tip 1: Senior Citizens Receive a Larger Standard Deduction
Beginning at the 65 years old, the IRS allows seniors to take an additional standard deduction of up to $1,600 on their taxes. Seniors who are single or who file as the head of household will be able to receive the maximum amount of $1,600 as a standard deduction. Those who are married or file a joint return will be able to add a $1,300 deduction for each spouse who is 65 years or older, and seniors can apply even if one spouse is younger than 65 years old.
Note: Senior citizens who were born on January 1st will qualify for this deduction before their birthday on December 31st the prior year.
Tip 2: Retire in a Tax-Friendly State for Seniors
When it comes to retirement, some states offer senior citizens more financial benefits than others. For example, there are a few states with no income tax at all. On the other hand, states like California have incredibly high income taxes at about 13 percent. Other states, like Tennessee and New Hampshire, will only tax interest and dividends. States with a higher income tax rate are not ideal for individuals looking to retire. Although there are a wide variety of factors to consider when deciding where to retire, senior citizens should also account for which states offer the best tax rates for seniors.
Tip 3: Consider Donating to Charity
One of the easiest ways to reduce your taxable income each year is by giving to charity and itemize your deductions. There are plenty of good reasons to give to charity each year and the tax incentives make it a popular option. In order to receive a deduction on a tax return, you must itemize your deductions on a Schedule A form. Due to some recent changes in the tax code in 2018, you may receive the most optimal tax deduction if you give a larger lump sum to charity as opposed to smaller payments made over a number of years. For example, instead of donating $1,000 each year for four years, you should consider donating a lump sum of $4,000 all at once.