Over 65: Tax Considerations for Senior Citizens

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Photo by Fotolia/Lisa F. Young
Senior citizens should take note of rule changes and other tax considerations for those who are over 65.

Many requirements, deductions, and credits are different for senior citizens. First of all, you need not file a return at all if you’re single and your income is less than $4,300; if you’re married, one of you is over 65, and your income is less than $6,400; or if your income is less than $7,400 and you’re both over 65. However, you do have to file if:

  • You had self-employment income exceeding $400.
  • You can benefit by filing as a qualifying widow or widower (see Publication 17), in which case the limit is $5,400.
  • You could be claimed as a dependent by another taxpayer and had unearned income (say, from investments) of $1,000 or more.
  • You receive distributions from an Individual Retirement Account.

Other tax considerations include … death. Yes, gruesome as it may seem, dying doesn’t exempt you from filing. The surviving spouse or the legal executor, administrator, etc., must file in the year of a taxpayer’s death if that person would have been required to file. On the other hand, joint returns maybe filed by the surviving spouse with dependent children for two years after the year of death. Additionally, the estate will probably file a return for the year of death on any earnings during probate.

On lines 6a and b of Form 1040, you may take an additional personal exemption for yourself and/or your spouse if you are over 65. The additional exemption may not be claimed by someone reporting you as a dependent.

If your gross income is less than $17,500 (unmarried, filing single), $20,000 (filing joint with one spouse under 65), of $25,000 (if you’re both 65 or older), you may qualify for the Credit for the Elderly. (Note: This credit is also available to some people under 65. See general instructions for Form 1040 or Publication 17.) To determine what your credit is, file Schedule R.

A Few Other Senior Tax Tips

If, when you retire, you receive a lump sum distribution or a large retirement bonus, consider prepaying charitable and political contributions, medical expenses, and other Schedule A items, so that you can take large deductions in the year in which you receive the lump sum. For example, you might arrange to pay your doctor in advance for medical expenses you expect to have in the next year. Take note, however, that there are limitations on how far in advance you can prepay many items; you may want to consult a tax pro for this.

In addition, if you receive a lump sum distribution upon retirement, consider ten-year income averaging, a special provision for this situation. Get a copy of Form 4972 to look into ten-year averaging’s possibilities. Other options to consider for this situation are capital gains treatment and tax-free rollover into an IRA. Now that you’re retired, perhaps you’ll have time to work out these options to your best advantage.

Remember to add social security and other nontaxable income to your available income, line 33 on Form 1040, when figuring your sales tax deduction on Schedule A.