Senior citizens are among the many people in the United States who would like to hold on to a little more of their money over the course of the year. Seniors, who sometimes have limited financial resources, should be concerned about making sure they retain the maximum amount of money they can while fulfilling the legal requirements at tax season. Following a few simple tips can help senior citizens retain more of their money and protect it wisely.
Don't Ignore Filing
Just because a senior is retired, owns his home outright and doesn't get a paycheck every week, it doesn't mean he shouldn't file his taxes. At this point in life, it might seem easy to ignore filing altogether. Although this is not the proper thing to do according to federal law, it is also not the smart thing to because that senior might just be cheating himself.
Occasionally government programs will provide money for all citizens, seniors included, that is free and clear--even if that person hasn't paid any income tax the previous year. Programs such as the stimulus plan enacted in 2008 provided $300 for singles and $600 for couples regardless of the amount paid in. An extra few hundred bucks can really make a difference, and often a person can get these benefits just from turning in a simple return.
Proper Social Security Calculation
It's important to know the proper Internal Revenue Service (IRS) rules for calculating the tax on Social Security benefits. It's possible you might not have to pay taxes on benefits. The process begins with determining the base amount. This is determined by filing status, according to the IRS website.
A senior who files as single, head of household or qualifying widow has a base amount of $25,000. If a senior is married, filing separately, but has lived apart from a spouse throughout the prior tax year, the base amount remains $25,000. The base goes up to $32,000 for those married and filing jointly. The base drops to zero for those married, filing separately but having lived together during the prior tax year.
To determine whether Social Security benefits are taxable, add up the total amount of your benefits and combine this total with all other income received during the tax year. If the amount is more than your designated base amount, then the benefits will be taxable, according to the IRS.
Some senior citizens have been fortunate enough to build wealth for themselves over their lifetimes, and they would like to see their financial good fortune stay intact. Seniors who are wealthy or who have cashed out a sizeable retirement plan such as a 401(k) might be looking for tax relief, and they can get it by investing their money into certain opportunities.
Making large oil and gas investments equaling $250,000 or more as a general partner can allow someone in the 30 percent tax bracket to offset all of the potential tax liability at the federal and state level, according to Mainstreet.com. This is a tax shelter worth considering if a one-time lump sum from a retirement plan is this amount or more as well.
Health Savings Account
Health savings accounts provide a safe place to deposit money in the event of medical situations that require out-of-pocket expenses. Money placed into a qualifying medical savings account is often tax-free.
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