With age comes changes that impact all aspects of life, including tax obligations. However, these changes are no excuse not to prepare and file taxes correctly, and being aware of them is essential to make the most of your situation when considering tax filing for seniors. Avoiding common tax mistakes prevents costly penalties and reduces their tax liability.
An expert CPA like Marcia Campbell has the honed skills to help seniors ensure compliance with changing requirements while making the most of their tax situation. Here are common mistakes to avoid for seniors:
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Common Mistakes to Avoid When Tax Filing for Seniors
An important consideration regarding tax filing for seniors is taxable income. Remember that nearly all income is taxable. Social Security can be taxed depending on the other income seniors receive.
If seniors receive significant income outside of these benefits, they may need to pay taxes on benefits. Failing to account for this ranks among the most common tax mistakes. To determine if their benefits are taxed, seniors should add:
- Income received outside of their Social Security benefits
- Any tax-free interests
- 50% of their Social Security benefits
If the total falls between $25,000 and $34,000 for single filers and $32,000 and $44,000 for joint filers, they can incur a tax liability of up to 50% on benefits. If it exceeds this range, it can increase up to 85%.
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Another consideration when discussing tax filing for seniors are retirement accounts, like IRAs and 401(k)s. These accounts must have a required minimum distribution (RMD) taken out each year by the account holders.
The required minimum distribution begins when the holder turns 72. You can calculate the amount using the total account balance and the holder’s life expectancy. Distributions are taxed, and this requirement minimizes taxable money received.
This is one of the crucial common tax mistakes seniors should avoid because any neglected amount of this distribution is taxed at 50%. Even if a senior doesn’t need the total amount, they need to take it out to avoid losing out on 50% of neglected funds.
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One of the most significant out-of-pocket expenses for the elderly is healthcare, and this expense is a crucial component of effective tax filing for seniors.
If these expenses exceed 10% of their total Adjusted Gross Income, medical expenses are deductible. However, one of the most common tax mistakes seniors make is not thoroughly documenting these expenditures to disclose when filing their taxes.
Even failing to keep records of one expenditure can significantly impact their tax liability. Also, self-employed seniors may be able to deduct their health insurance premiums, which is important to include when filing.
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Need Expert Help to Take Care of Tax Filing for Seniors? Contact Us for Professional Assistance
Retirement doesn’t mean you can abandon all responsibilities. You still have to file tax returns, and requirements often change. However, changing circumstances mean new opportunities to reduce your tax liability, and only a professional CPA has the expertise and experience to navigate and capitalize on them.
At Marcia Campbell CPA, we provide expert tax preparation services for seniors that ensure they avoid common tax mistakes while minimizing their tax liability. Contact us to get started and learn more.