The holiday season is rapidly approaching and that means a couple of things: for most of America, it’s time to spend money on presents, food, and drink AND that the year is coming to an end. Every year, in the fourth quarter of the year, we see many of our business clients running low on budgeted funds and more than a few of our older clients, especially wage earners and retirees, come in to speak to us about tax breaks.
If you (or someone you know) is over 50, your Uncle Sam has a few special ways that he awards you with tax advantages and we’ve tracked them down and made them easy to understand for you. Now, some of these are well-known, while others are in a sort of grey area, with respect to how tax laws are phased in at the federal, state, and local level. Remember, with taxes, there are multiple scenarios, and what works for you might not work for your cousin in Florida!
Check them out and remember, many of these need to be taken advantage of BEFORE the start of the New Year, so call us and make an appointment to save a little extra this year.
• If you’re 65 or older, the IRS allows you to earn up to $14,250 before you have to file a tax return ($27,800 for couples). This represents nearly an extra 15% from the threshold for younger workers, but is a nice perk.
• Property taxes, while usually a state or municipal tax, are worth looking into with your tax professional. In many areas, older property owners can quality for lower property taxes or school deferrals, so this could be an important tax strategy for families with older relatives living in the home.
• Elderly and disabled tax credits are available if you or your spouse are over 65 and disabled or on a limited income. You still may qualify for a tax credit even if you generally file a 1040 or 1040A. Aspects of this credit also apply to those who have retired before the age of 65 and are disabled.
• More IRA savings have long been available if you’re over 50. You can contribute an additional $1,000 annually to your IRA, thus saving up to $1650 on your tax bill. The annual contribution maximum for those over 50 is $6500.
• No IRA? No Problem! If you’re still trying to catch your 401(k) up from a few years ago and are over 50, the IRS lets you contribute more, too. The maximum contribution is a whopping $24,000 and that can save you nearly $6,000 in taxes. Even better? You can start to withdraw money tax- and penalty-free at 59 ½ years of age!
• If you’re still working and have a high-deductible health plan, you can claim a deduction on contributions to your Health Savings Plan (HSP). If you are over the age of 55, you are allowed an extra $1,000 contribution annually – up to $4,650, and with the constant worry about health insurance, this is a great place to stash some money, too.
One of the biggest challenges of being over 50 is that many of the methods and suggestions that worked so well for so long with respect to tax breaks, shelters, and investment have all changed. Today, it is critical that you sit down with a tax professional at least once (and preferably twice) a year to make sure that the strategies you are employing with mitigate as much of your tax burden as possible. We’re here to help, too, so by all means, come in and see us and let’s see how we can lower your taxes.
All the best-