Talk about tax relief—now that the tax filing deadline is moved to July 15, 2020, many of us are exhaling with relief. The Treasury Department and Internal Revenue Service (IRS) announced this change last month to help its citizens at a time of national emergency with COVID-19.
You can use this additional time to make sure you get every tax break available to you. Loads of tax breaks are available to folks 50 and older—and especially age 65 and up. Whether you prepare your own taxes or hire an accountant or tax preparer to do the job for you, here are 7 Dos and 5 Don’ts to keep in mind:
Here are some tax relief “Dos” to keep in mind:
- Do consider free tax assistance through the Tax Counseling for the Elderly program. IRS-certified volunteers help older taxpayers with basic tax return preparation and electronic filing.
- Do be careful when you calculate the taxable amount of your Social Security—some amount of your Social Security is not taxable for anyone filing. In addition, those with low income may not have any tax liability on their Social Security.
- Do consider how the new CORONAVIRUS AID, Relief, and Economic Security Act may offer tax relief:
- Retirement account owners can take withdrawals for emergency costs related to the pandemic and delay tax consequences for 3 years.
- Retirees can delay taking required minimum distributions from retirement accounts in 2020.
- 401(k) loan limits increase to 100% of your vested account balance up to $100,000.
- The 2019 IRA contribution deadline has been extended to July 15, 2020
- Do consider the Credit for the Elderly or Disabled if you have low income and you or your spouse is 65 or older. This Credit can lower your tax bill. Here are the specifics from the IRS on how to apply for this Credit.
- Do find out if you’re eligible for a property tax break by checking out this resource that links to every state’s tax agency. Many states offer property tax exemptions to seniors, especially if they don’t have high incomes.
- Do ask your tax preparer whether you can claim your Medical Alert system as a medical expense on your taxes.
- Do consider contributing an additional $1,000 to an IRA to save on your tax bill (because of the pandemic, you now have until July 15 to do so). Workers age 50 and older can contribute an additional $1000, or a total of $7,000 in 2020.
Here are some tax relief “Don’ts” to keep in mind:
- Don’t itemize your deductions if you can claim a higher standard deduction amount. Your standard deduction increases once you and/or your spouse reach age 65 years.
- Don’t worry about penalties from withdrawing money from an IRA—as long as you’re 59 ½ years old, you can withdraw this money without incurring the 10% penalty. (However, income tax will be due on withdrawals from traditional retirement accounts.)
- Don’t forget to consider a qualified charitable distribution. You can avoid income tax on withdrawals from traditional retirement accounts if you take some of that money and make a charitable distribution. This rule applies to seniors 70 ½ years and older.
- Don’t file a tax return for 2019 unless you’ve made more than $27,000—the tax filing threshold for people age 65 and older.
- Don’t think it’s too late to contribute to your 401(k). You may be eligible for a catch-up contribution. Employees age 50 and older can defer paying income tax on $6,500 more than younger workers by contributing that amount to a 401(k) plan.