Tax filing time is quickly approaching (April 18, this year), so it’s a good time to offer a reminder about tax filing rules, tax deductions and tax credits specifically for people 65 and older. If you’re of that age, they just might help you save on taxes. A caveat: you may want to consult an accountant or tax attorney for tax issues relating to elder care.
1. Who Needs to File
Every unmarried person over 65 who had a gross income of at least $11,900 in 2016 is required to file an income tax return. Social Security benefits are not included in that gross income figure unless: you were either married filing separately and lived with your spouse at any time during 2016 or half of your net Social Security benefits plus other gross income and any tax-exempt interest exceeded $25,000 ($32,000 if you were married and filing jointly).
If you met either of those two exceptions, the taxable portion of your Social Security benefits is included in your gross income for determining whether you need to file a return. (To learn the rules on computing taxable Social Security benefits, read this Internal Revenue Service (IRS) “Tax Tip:” Are Social Security Benefits Taxable?)
Some taxpayers over age 65 qualify for the Tax Credit for the Elderly or Disabled, which ranges between $3,750 and $7,500.
If you lived only on Social Security in 2016, you won’t need to file a federal income tax return.
2. The Elderly or Disabled Tax Credit
Some taxpayers over age 65 qualify for the Tax Credit for the Elderly or Disabled, which ranges between $3,750 and $7,500. (Some people under 65 can claim this credit, too, if they met certain rules.)
To be eligible, you must file the Form 1040 or 1040 A and have been 65 or older at the end of 2016 and had a low income. The income rules are a little complicated; you can read them in IRS Publication 524. As an example, you can’t take the credit if you were single in 2016 and your adjusted gross income was equal to or more than $17,500 or the total of your nontaxable Social Security and other nontaxable pensions, annuities or disability income was equal to or more than $5,000.
You claim this credit on Schedule R.
3. A Special Rule for Deducting Medical Expenses
Generally, taxpayers can only deduct unreimbursed medical and dental expenses for 2016 if they itemize and if those expenses exceeded 10 percent of their adjusted gross income. But there’s a special rule for people who were 65 or older last year.
They can write off medical and dental expenses that exceeded 7.5 percent of adjusted gross income. If you were married and only one of you was 65 or older in 2016, you can still use the 7.5 percent rule. Beginning Jan. 1, 2017, however, the 10 percent threshold will apply to all taxpayers, including those over 65.
Qualifying long-term are expenses can be treated as medical expenses.
To determine how much you can deduct, use Form 1040, Schedule A.
4. Required Minimum Distributions from IRAs
Andy Smith, a Certified Financial Planner in Indianapolis and co-host of the Investing Sense radio show says it’s important not to miss these required minimum distributions. “The penalty is one of the harshest the IRS has to offer — 50 percent of the amount that you should have withdrawn from the account in addition to the amount that you needed to take out anyway.”
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