Many senior citizens and their families are not aware of the various tax rules, benefits, and deductions that apply to them. Terrance Bond, a retired CPA with over thirty years of experience in tax preparation and advice, offers insight to those filing a tax return involving someone over the age of sixty-five. He says that it is best to begin by “determining if the senior can be claimed as a dependent or if they should file their own taxes.” He continues, “There are a variety of tax credits and deductions available that depend primarily on filing status.” Typically, the senior should file their own return if they financially support themselves. However, if an adult child or other relative funds care for more than half the year, then they can claim the individual as a dependent.
For Seniors Filing Their Own Taxes:
- Social Security – Social Security benefits alone are generally non-taxable, but any other income that is not tax exempt has to be filed and can require a percentage of your social security benefits to be taxed as well. You can use this tool from the IRS to help identify what benefits may be taxable.
- Standard Deduction – People aged sixty-five and older receive a higher standard deduction of $7,750 if filing single and $14,800 if filing jointly. But, seniors should not automatically opt for the standard deduction over itemizing their deductions. “It is important to calculate both ways in case itemizing makes more sense,” advises Bond.
- Taxable Distributions – Once you are over fifty-nine-and-a-half, you can withdraw funds from an IRA or 401k without a penalty, though these distributions are usually still taxable. At age seventy-and-a-half, you are required to withdraw a minimum distribution each year. However, “If you roll these distributions directly to a charity,” Bond says, “They are not counted as income and consequently are not taxable.”
- Medical Expense – If you are sixty-five or older, you can deduct medical expenses that exceed 7.5 percent of your adjusted gross income (AGI). For those under sixty-five, medical expenses can only be deducted if they equal 10 percent or more of your AGI.
- Assisted Living Expenses – The IRS accepts deductions for the cost of housing and meals for seniors receiving long-term care in a home or a community due to chronic illness or the inability to live alone. Bond states, “The qualifying senior must be deemed unable to perform at least two activities of daily living without assistance or require considerable supervision because of a cognitive impairment, such as Alzheimer’s disease.” According to the 1996 Health Insurance Portability and Accountability Act (HIPPA), these residents are eligible for deductions related to any unreimbursed medical expenses, personal care services, and rental fees.
- Credit for the Elderly or Disabled – Qualified individuals sixty-five and over (or younger if disabled) are eligible for this credit if their income is below $17,500 if filing single and $25,000 if filing jointly. Additionally, any non-taxable benefits, including Social Security “must be less than $5,000 for filing single and $7,500 if filing jointly,” says Bond.
For Family Members of Elderly Dependents:
- Qualifying Dependents – To be eligible, the individual must meet nationality requirements, have a relative who provided at least half of the person’s support, and cannot have taxable income that exceeds $3,950.
- Medical Expenses – If the family member paid for the dependent’s medical expenses, including the cost of prescription drugs, hospital care, doctor’s visits, or equipment, those costs can be claimed as an itemized deduction, as long as they exceed 10 percent of the taxpayer’s AGI. “The IRS allows caregivers to deduct medical expenses for seniors who do not meet the income requirements,” Bond says. “As long as they provide more than half of their support.” Most insurance premiums for long-term care are deductible medical expenses as well.
- Assisted Living Expenses – Adult children and relatives can deduct expenses paid for a qualified dependent to reside in a nursing home, assisted-living, or other type of care facility. However, “If the senior is only residing at the home for custodial reasons,” says Bond. “Then only medical expenses are deductible.” Any entrance fees charged by the facility that are directly related to medical care are also deductible.
- Dependent Care Credit – Taxpayers can claim this credit if they paid for the care of an elderly dependent while they worked or looked for work. Qualifying individuals can claim up to 35 percent of expenses paid, to a maximum of $3,000.
Bond emphasizes that tax rules are complicated and suggests consulting a tax professional about your situation before completing your taxes. The TCE (Tax Counseling for the Elderly) program is a great resource that offers free tax help for taxpayers who are sixty years of age or older.