If there’s the best time to offer a reminder about tax filing rules, tax deductions and tax credits especially for people over 65, it is today. The filing time is quickly approaching and it’s always better to be ready than sorry. These tips will surely help you if you’re 65 and older although we still recommend that you consider consulting an accountant or tax professional for tax issues that relate to elder care.
If you are unmarried, 65 and older, with a gross income of at least $11,900 in 2016, then you are required to file an income tax return. That gross income figure does not include the Social Security benefits 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 and other gross income and any tax-exempt interest is higher than $25,000 ($32,000 if you were married and filing jointly).
The taxable portion of your Social Security benefits is included in your gross income for figuring out whether you need to file a return if you meet either of the above-mentioned exceptions. You may read the Internal Revenue Service (IRS) “Tax Tip:” Are Social Security Benefits Taxable? to learn the rules on taxable Social Security benefits computation.
There’s no need for you to file a federal income tax return if you lived only on Social Security in 2016.
The Tax Credit for the Elderly or Disabled ranges between $3,750 and $7,500 and some taxpayers over age 65 may qualify for this. If certain rules are met, other people who are under the age of 65 can claim this credit too.
It’s required to file the Form 1040 or 1040 A and must be 65 or older at the end of 2016 with low income in order to qualify. You can read the income rules in IRS Publication 524, but allow us to warn you - it can get a little complicated. For example, you will be able to take the credit if you were single in 2016 and your adjusted gross income was equal to or more than $17,500 or your non-taxable Social Security and other non-taxable pensions, annuities or disability income total was equal to or more than $5,000.
This credit can be claimed on Schedule R.
In general, you can only deduct unreimbursed medical and dental expenses for 2016 if you itemize and if those expenses are higher than 10% of your adjusted gross income. However, for people who were 65 or older last year, there’s a special rule provided for them.
As long as they do not exceed 7.5% of adjusted gross income, you can write off medical and dental expenses. If only one of you was 65 or older as a married couple in 2016, the 7.5% rule is still applicable. However, the 10% threshold will apply to all taxpayers beginning Jan. 1, 2017 including those over 65.
Medical expenses also include qualifying long-term expenses. You can use Form 1040, Schedule A to find out how much you can deduct.
You need to take Required Minimum Distributions (RMD) if you are 70 ½ or older and must be reported on your tax return. You will find the RMD rules in the IRS Publication 590-B.
It’s important not to miss these required minimum distributions according to Any Smith, a Certified Financial Planner in Indianapolis and co-host of the Investing Sense radio show. He added that the penalty for missing them is one of the harshest the IRS has to offer. That is 50% of the amount that you should have withdrawn from the account, not yet taking into consideration the amount you needed to take out anyway.
You may want to read further about other tax deductions available for seniors and retirees in the IRS website or talk to your trusted professional who knows the ins and outs of tax filing as well as help you save more money instead of losing them.
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