As a retiree, it’s smart to take full advantage of the tax deductions and credits available to seniors. These often-overlooked opportunities can help stretch your retirement savings further and keep more money in your pocket.
Here are six key tax-saving strategies retirees should know:
- Higher Standard Deduction for Seniors
Once you reach age 65, the IRS offers a larger standard deduction, which can reduce your taxable income—especially useful if you don’t itemize your deductions. The exact amount increases annually and depends on your filing status.
If you or your spouse are visually impaired, the standard deduction is even higher.
- Social Security Income May Be Tax-Free
Many retirees aren’t required to pay federal income tax on their Social Security benefits. If your total income—including Social Security and other earnings—is $25,000 or less ($32,000 for joint filers), your benefits are typically tax-free.
- Credit for the Elderly or Disabled
This valuable tax credit is available to low-income seniors and people with permanent disabilities. Depending on your circumstances, the credit can range from $3,750 to $7,500 and is applied directly against the taxes you owe.
To qualify, you must:
- Be age 65 or older, or under 65 and permanently disabled
- Have an adjusted gross income (AGI) of $17,500 or less
- Receive no more than $5,000 in non-taxable Social Security or disability income
- Deductible Medical and Dental Expenses
If you itemize your deductions, you may be able to deduct qualifying medical and dental expenses that exceed 7.5% of your AGI.
Examples of deductible expenses include:
- Prescription medications
- Health insurance premiums
- Long-term care insurance
- Dental work, glasses, and hearing aids
- Therapy and in-home care services
Additionally, if you’re self-employed, Medicare Part B and Part D premiums may be deductible even if they don’t exceed the 7.5% threshold.
- Business Expense Deductions in Retirement
Many retirees launch part-time businesses or consulting gigs. If you’re self-employed, you can deduct a wide range of business expenses, including:
- Tools, supplies, and equipment
- Advertising and website costs
- Consultant and professional fees
- Home office expenses
These deductions can significantly reduce your taxable income.
- Tax-Free Profit from Selling Your Home
Thinking about downsizing or relocating? If you’ve lived in your primary residence for at least two out of the last five years, you may not owe any taxes on the profit from selling your home—up to $250,000 for individuals and $500,000 for married couples filing jointly.
Tax rules can be complex, but understanding the deductions and credits available to you can make a big difference in your financial life after retirement. Consider working with a tax professional to ensure you’re making the most of every opportunity.
