Dear Kiwi and Mango,
We are filing our taxes this weekend. Are there any special tax deductions we should be aware of for seniors for the 2023 tax year?
Thanks for your help!
Dee Duxshuns
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Dear Dee,
Many seniors are missing out on tax deductions and tax savings! The following deductions could be very helpful for seniors, especially those living on fixed incomes:
Extra standard deduction: Millions of Americans take the standard deduction, which is a flat dollar amount determined by the IRS. It reduces taxable income, instead of itemizing deductions such as mortgage interest and charitable deductions on the 1040 tax form. In the 2023 tax year, seniors who are 65 or over or blind and meet certain qualifications are eligible for an extra standard deduction in addition to the regular deduction.
The extra standard deduction for seniors for 2023 is $1,850 for single filers or those who file as head of household and $3,000 for married couples, if each spouse is 65 or over filing jointly. This boosts the total standard deduction for single filers and married filing jointly to $15,700 and $30,700, respectively.
Note that the standard deduction amount for 2023 is:
- Single or Married filing separately—$13,850.
- Married filing jointly or Qualifying surviving spouse—$27,700.
- Head of household—$20,800.
Nearly 90% of Americans take the standard deduction, according to IRS data. However, whether you should itemize or not depends on whether the total of your itemized deductions tops your standard deduction or whether you must itemize deductions because you can’t use the standard deduction, the IRS says.
Medicare premium deduction: A self-employed retiree can deduct Medicare premiums even if they don’t itemize. This includes Medicare Part B and D, plus the cost of Medicare Supplement (Medigap) policies or a Medicare Advantage plan. The IRS considers self-employed people who own a business as a sole proprietor, partner, limited liability company member, or S corporation shareholder with at least 2% of the company stock.
You must have business income to qualify, since you can deduct premiums by only as much as you earn from your business. You also can’t claim the deduction if your health insurance is covered by a retiree medical plan hosted by a former employer or your spouse’s employer’s medical plan.
IRA contributions by a spouse: Spousal IRAs are when you contribute earned income to a non-working or low-earning spouse’s IRA, if you file a joint tax return as a married couple. They are treated similar to traditional IRAs, reducing pretax income. These are not joint accounts because the individual spouse owns each IRA, and you can’t do this with a Roth IRA. There are specific guidelines, such as the working spouse must earn at least as much money as they contributed to both of the couple’s IRAs.
Qualified charitable distributions: A common mistake that seniors make is making charitable donations by taking money from their bank account or traditional IRA and then writing a check from their bank account. It is better to use a qualified charitable deduction, or QCD, which enables seniors age 70 ½ and older to transfer up to $100,000 directly from a traditional IRA to a charity tax-free. Married couples filing jointly can donate $200,000 annually.
The contributions must be made to a qualified 501(c)(3) charity. This may be a good option when you need to take an annual withdrawal, known as a Required Minimum Distribution or RMD, and don’t need the money. Be sure to keep Medicaid eligibility requirements in mind when making charitable donations. Click here for more details.
Credit for Dependent Care: If you or your spouse are unable to care for yourself and need outside care while the other spouse is working, you may qualify for this credit. The credit is based on a percentage of your qualified expenses, up to $3,000 for one person and $6,000 for more than one person. The maximum credit for the care of one qualified person is $1,050. The maximum for two or more qualifying persons is $2,100. All taxpayers are eligible for this credit, regardless of their income.
Child Tax Credits: If you have a dependent child or children 16 and under, you may be able to claim the $2,000 Child Tax Credit for each child. You may also be eligible to claim the Additional Child Tax Credit — this is a refundable credit that uses up to $1,600 per child of the unused credit. This may be used as part of your refund if you don’t use it to reduce your taxes to zero.
Credit for Other Dependents: If you have a dependent who is not eligible for the Child Tax Credit such as a child 17 or older, you may be eligible for the credit for other dependents. This credit is for taxpayers with dependents who do not qualify for the child tax credits. The credit is a $500 per dependent, which is nonrefundable, meaning you can only take the amount you need to reduce your taxes to zero.
Seniors are eligible for any of the child tax credits if they have qualifying dependents and earned income.
Medical expenses: The IRS allows you to deduct qualified unreimbursed medical care expenses that exceed 7.5% of your adjusted gross income. These deductions include the cost for in-home care, assisted living, and nursing home care, and might include unreimbursed purchases for medical treatments, surgeries, preventative care, and visits to the doctor. If you have a spouse on Medicaid, please read today’s Ask the Expert article for more information on filing taxes.
Seniors should consult with a tax professional to ensure that they are not missing out on possible tax deductions.
Hope this helps!
Kiwi and Mango
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