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10 Tax Breaks for People Over 50

10 Tax Breaks for People Over 50

If you’re over 50 you have some tax advantages that your younger counterparts do not. We’ve laid out the ones that you’re most likely to use this tax season. Don’t submit your taxes without first looking at this list. (For more, see Taxes 101 for Retirees.)

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No Early Withdrawal Penalty

If you have a tax-advantaged retirement account, you probably know that you can’t get your hands on the money without paying a 10% early withdrawal penalty until you reach age 59½. Once that happens, the most you owe is  standard income taxes on any money you take out. The amount that is taxable depends on the type of retirement account you have; withdrawals from Roth IRAs, for example, are tax free.

Larger Standard Deduction

How would you like to not claim an extra $1,550 in income this tax season? If you were born before 1951 you can claim a standard deduction of $7,850 if filing singly and $15,100 if both you and your spouse are younger than 65 and filing jointly. Everybody else is stuck with the regular standard deduction of $6,300 if they’re single and $12,600 if they’re married. Of course, if you itemize your deductions, which many retirees do, the standard deduction is irrelevant to you.

More Medical Deductions

In general, the older you are, the more time you spend in a doctor’s office. Until 2017 people older than 65 who itemize get a part of their medical expenses back once their bills exceed 7.5% of their adjusted gross income (AGI). The younger population doesn’t receive anything until expenses exceed 10% of their AGI. (For details, see 65 or Older? Have Elective Surgery This Year.)

Higher HSA Contributions

The medical deduction isn’t the only way that the IRS wants to help the older population cover their medical bills. For the 2015 tax year families can contribute as much as $6,650 to their health savings account, while individuals can put in $3,350. In 2016 the family maximum rises to $6,750, but if you’re 55 or older you are allowed an extra $1,000 as a catch-up contribution.

You May Not Have to File

People older than 65 don’t have to file until they reach $11,850 in income ($23,100 if married). For people younger than 65 the thresholds are $10,300 if single and $20,600 if married. If one person is over 65 and the other is younger, the figure is $21,850.

Play Catch-Up

Once you reach the age of 50 you’re eligible for catch-up contributions to your 401(k), 403(b) and some other retirement accounts. In 2015 and 2016 you can contribute up to $6,000 toward your catch-up contribution. Also, those 50 and over can contribute a maximum of $6,500 to their traditional or Roth IRAs, as opposed to people under 50, who have a limit of $5,500. If you have a less-common retirement plan, such as a SIMPLE 401(k), things are a bit different. Read more on the IRS website.

Pay Less in Property Tax

Property tax laws aren’t regulated at the federal level, so there’s no single standard to which we can point, but some jurisdictions provide breaks for people over 50. This might be income dependent or come with other stipulations, but before paying your property taxes check with your local tax collector to make sure that you’re not missing out on a break.

Avoid the RMD – Give to Charity

Once you reach 70½ you have to take some money out of your individual retirement accounts in what’s known as a required minimum distribution (RMD). Instead of pocketing the cash, give it to a charity of your choice. Making such donations will keep the RMD from adding to your income and  may keep you in a lower tax bracket. Your income can also affect whether you have to pay federal taxes on Social Security benefits and how much you’re charged for Medicare (see The High Net Worth Guide to Social Security and The High Net Worth Guide to Medicare).

The Bottom Line

With age comes many benefits: wisdom, grandkids, retirement and tax breaks. Also, if you’re approaching retirement and find yourself a little behind on your contributions, breaks are also available, but you must know how take advantage of the them.

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Source by:- investopedia

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