Retirees Can Save Thousands If They Understand These Tax Breaks

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Social Security is a critical lifeline for millions of U.S. retirees, making it essential for them to take advantage of every tax benefit available. The Internal Revenue Service (IRS) offers several tax deductions for seniors, but not everyone is aware of them.

Understanding these deductions can help seniors maximize their income and make sound financial decisions. It may also allow them to pocket some extra money. In this article, we’ll discuss 10 tax breaks for retirees that they may not know about.

1. Larger Standard Deduction

Seniors who are age 65 or older, or whose spouse is at least 65, can claim a larger standard deduction. For 2024, the standard deduction is $1,550 more than the deduction available to those younger than 65. Married couples can boost their standard deduction by $1,950 if one of them is over 65 and by $3,900 if both are 65 or older. Additionally, a blind taxpayer or spouse can receive an even higher standard deduction​.

2. Spousal IRA Contribution

Retirement doesn’t mean you can’t contribute to an individual retirement account (IRA). Generally, you need earned income to contribute to an IRA, but if your spouse is still working, they can contribute up to $7,000 to your traditional or Roth IRA, or up to $8,000 if you’re 50 or older. This means the total combined contributions to your IRA and your spouse’s IRA can’t exceed $14,000 annually, or $16,000 if both of you are 50 or over​.

3. Different Filing Threshold

The filing threshold refers to the income level at which you must file a tax return. Different filing thresholds apply for different filers. For 2024, seniors don’t need to file a return unless their income exceeds $14,600 for single filers or $29,200 for married filers over 65. The threshold is even higher for those who only receive Social Security as their primary income source and may not need to file a return at all​.

4. Property Tax Breaks

Although property tax rules vary by state, many retirees qualify for property or school tax deferrals or exemptions if they meet certain criteria. For example, Texas homeowners aged 65 or older qualify for an additional $10,000 homestead exemption for school district taxes. It’s important for retirees to understand the property tax rules in their region, as they may need to fill out a separate tax form or apply separately to claim a property tax exemption​.

5. Social Security Tax Exemption

If your Social Security and other earnings total less than $25,000 annually, you don’t have to pay federal income taxes. For 2024, if your income is between $25,000 and $34,000, you pay taxes on only half of your benefits. Married couples filing jointly do not pay taxes on Social Security if their income is below $32,000, and they pay taxes on 50% of their benefits if their annual income is between $32,000 and $44,000.

6. Medicare Premiums Tax Deduction

If you become self-employed after retiring, you can deduct premiums paid for Medicare Part B and Part D. You can also deduct the cost of supplemental Medicare policies or a Medicare Advantage plan. This deduction is available to retirees whether or not they itemize. Additionally, this deduction isn’t subject to the 7.5% adjusted gross income test, which applies to itemized medical expenses. However, retirees cannot claim this deduction if covered by an employer-subsidized health plan offered by their or their spouse's employer.

7. Credit for Seniors and Disabled

You may be eligible to claim a tax credit if you or your spouse is 65 or older and has low income. For 2024, your adjusted gross income must be below $17,500 ($25,000 if both you and your spouse are 65 or older), while your nontaxable Social Security and pension income must be below $5,000 ($7,500 for couples) to claim the credit. If only one spouse is eligible, the threshold income level is $20,000. Those who are permanently disabled may also qualify for the rebate, irrespective of age.

8. Business and Hobby Deduction

If you start a business after age 65, such as consulting or selling at online platforms, craft shows, or local stores, you might be eligible for additional deductions. These deductions depend on the costs associated with running the business, such as advertising, home office expenses, supplies, and more​.

9. Give Money to Charity

Once you are 70½ years old, you can make charitable donations without paying taxes on the income using qualified charitable distributions (QCDs). Under QCDs, retirees who meet the age criteria can donate up to $100,000 annually from their traditional IRAs. Your spouse can also do the same from their IRA. This transfer is excluded from taxable income and counts towards your required minimum distribution (RMD).

10. Additional IRA Deduction

This tax break isn’t just for retirees but is still worth mentioning. For 2024, workers aged 50 and older can save more by contributing to an IRA. For example, a 50-year-old in the 24% tax bracket can save $1,920 in tax, compared to $1,680 in savings for a younger person in the same tax bracket​.

This article originally appeared on ValueWalk

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