Ellen Davidson’s passion for reading, senior care and research studies has allowed her to pursue a career in writing. She is currently a staff writer for an Elder Care Information site.
New retirees must adapt to many changes in life. One important change involves federal income taxes. Most retirees need to start using new tax forms to take advantage of special deductions. Income often decreases enough to put seniors into new tax brackets. If you are near retirement age, these tax tips can help you save time and money:
1. Check the filing requirements; different rules apply to seniors. If your income is low, the Internal Revenue Service may exempt you from filing a tax return. You should still file a return if you’re eligible for a credit or a tax refund.
2. If you normally itemize deductions, consider using the standard deduction. Seniors can claim a larger standard deduction. This option also saves time and reduces the likelihood that the IRS will audit your tax return.
3. When saving money for taxes, keep in mind that your federal tax bracket may have changed. Many new retirees will enter the 10 or 15 percent brackets, which apply to annual incomes under $34,500.
4. The IRS offers a tax credit for the elderly and the disabled. Seniors with low to moderate income usually qualify for it. Disabled retirees under 65 may also qualify. For more details, see IRS publications 524 and 554.
5. You might need to obtain Form 1040 or 1040A. The IRS website indicates that taxpayers cannot use the shorter 1040EZ form when claiming the credit for retired or disabled people.
6. You may owe taxes on up to 85 percent of your Social Security benefits, according to the Social Security Administration. The percentage depends upon your income; it can be as low as zero.
7. If you do owe taxes on Social Security income, you can request that the government withhold taxes from your payments. This will simplify the process and protect you from late payment penalties.
8. Retirement income is often well documented and easy to verify, so seniors don’t face a greater audit risk than the general public. The IRS audits almost one percent of tax returns, according to CBS News.
9. Avoid taking an excessive number of deductions; this can trigger an audit. CBS News warns that the government may also initiate an audit if a married couple files separately with identical deductions.
10. When paying income taxes as a new retiree, leave yourself some extra time to adjust to the different tax forms. As always, follow the instructions carefully and double check each page for math errors.
11. You may find that you need additional help to adjust to the changes. The AARP, tax preparers, and local nonprofit organizations help seniors to complete and file tax paperwork.
As a retiree, you will find that tax payments become easier in some ways and more difficult in others. You might be able to take more deductions and pay a lower tax rate than you did in the past. However, you will probably need to use longer forms, and you may have to begin mailing quarterly payments to the IRS.