Age Has Its Privileges: Income Tax Issues for Seniors

The majority of tax laws apply regardless of age, but some are different if you’re 65 or older.

By the time you turn 65, you’ve probably already started enjoying some benefits reserved for senior citizens. Restaurants, exclusive living communities, entertainment venues – many businesses start offering discounts at 55.

TaxTips0614image1_zpse1892805You may have already have retired and/or started to draw Social Security. Your health care benefits will change significantly on your 65th birthday as you enroll in Medicare.

And what about income taxes? Yes, you still have to file and pay income taxes. Your income is still considered taxable unless it is exempt for some reason. At 65, you may still be receiving compensation for services or some other kind of business income, but the bulk of your money may be coming from sources like rents and royalties, interest and dividends, property sales, and estates and trusts.

Much of your tax preparation will be the same for the year you turn 65, but some things will be different. We’d be happy to go over these in detail at any time. The sooner the better, actually, if 2014 is the first year you’ll be filing as a senior. Then we can start making plans now for any adjustments that might fall in your favor.

Here are some of the areas in which your tax return may be a little different when you turn 65 and/or retire:

Deductions

If you are 65 or older, you can take a higher standard deduction than you did previously.

Note: The IRS considers you 65 the day prior to your actual 65th birthday.TaxTips0614image2_zps695176c7

Retirement Plan Distributions

There are so many different kinds of distributions, and the filing requirements are all so different, that you should really sit down with us before you start receiving them. That way, you’ll be able to make at least some rough income and expense projections (if you haven’t already done so as a part of an overall retirement plan). The IRS has strict, complex rules here, and you’ll want to stay in compliance to avoid any penalties.

Estimated Taxes

Whether or not you paid estimated taxes when you were working, it’s possible you’ll be required to pay them in retirement. Providers generally withhold taxes on pensions and annuities, but if you end up owing money when you file, you may be required to pay estimated taxes (unless you can adjust your withholding to cover the shortfall).

Social Security

TaxTips0614image3_zpsef6adecaIt’ll be nice to have another steady, reliable income stream, but your Social Security benefits will be taxed. If you opt to not have taxes withheld from your Social Security payments, you’ll either have to compensate for them elsewhere or pay estimated taxes.

Medicare

Medicare benefits are not considered income.

Start Now

Gone are the days when a large portion of the population worked for the same company for decades and retired with a nice employer-subsidized pension. 401(k)s, which are portable and only partially employer-subsidized, are replacing that model.

According to one source, one out of four individuals younger than 65 is not saving money for retirement at all. If you fall into this group, or if you’re in the even larger group that is saving but unsure they’ll have enough to retire, you owe it to yourself and any heirs you may have to start now, no matter how minimal your contributions.

We’d be happy to look at your current financial situation and hear about your retirement goals and dreams. Together, we can start piecing together a plan that will give you more confidence in your ability to retire young enough to enjoy your senior years.

 

About Brenda J. McGivern, CPA

Brenda McGivern started her own certified public accounting and management consulting firm in October 2001. The full service CPA firm provides tax and accounting solutions to meet the needs of today's small business and individual. Brenda McGivern has become a trusted advisor and valuable resource her clients rely on for timely, accurate assistance when they need it. Before starting the firm, she worked as an accountant for three years at a local firm and prior to that five years at a large international CPA firm in Boston. She has performed the following tax services: federal, state and local tax planning, international tax planning, estate and succession planning, mergers and acquisitions, capital retention and IRS representation. She has also coordinated assurance engagements, such as financial statement audits, reviews and compilations from the planning phase through the reporting phase. She has prepared and reviewed regulatory filings for numerous regulatory agencies including the Security and Exchange Commission. Prior to these positions she was selected from over 2,000 candidates into an eight-person intensive financial management program at an international technology company. The program consisted of graduate level classroom study and two six-month rotational assignments in financial operations. She graduated cum laude from the University of Massachusetts at Amherst and holds a Bachelors Degree in Business Administration with a concentration in accounting. McGivern also holds a license in Massachusetts as a Certified Public Accountant and is a member of the American Society of Certified Public Accountants and the Massachusetts Society of Certified Public Accountants. She currently sits is a board member at two local organizations. She resides in Stoughton, Massachusetts with her husband Brian, and their sons Sean, Ryan and Conor.
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