There are certain tax situations that may
apply to you as an older taxpayer. It is important to understand the way the tax
law affects your return to ensure you pay the least amount of tax. Learn more
about the following to prepare for an advantageous tax return:
- The Standard Deduction
- Retirement Plans and
- Lump-Sum Distributions
- Tax Credits
- Social Security
- Life Insurance Proceeds
Contact your neighborhood Jackson Hewitt office for more
information or for assistance.
You must first
determine if you are required to file a tax return. Generally, you must file a
return for 2014 if your gross income is equal to or greater than the following
amounts for your filing status:
- Single: $10,150
- Head of
- Married Filing Jointly: $20,300
Widow(er) with Dependent Child: $16,350
- Married Filing Separately:
However, if you are age 65 or older, the amounts
- Single: $11,750
- Head of Household:
- Married Filing Jointly: $21,500 if one spouse is age 65 or
older, $22,700 if both spouses are age 65 or older
- Qualifying Widow(er):
- Married Filing Separately: $3,950
your gross income, include all taxable income. You do not include Social
Security benefits unless you are Married Filing Separately and you lived with
your spouse at any time during the year. When determining if you qualify to use
the amounts for taxpayers age 65 and older, note that you are considered to be
age 65 the day prior to your actual birthday. Taxpayers born on January 1, 1950
are considered age 65 on December 31, 2014.
Your standard 6,200
- Head of Household: $9,100
Filing Jointly or Qualifying Widow(er): $12,400
- Married Filing
Separately: $0 or $6,200 if neither taxpayer is itemizing
However, if you are age 65 or older or blind and your
filing status is Single or Head of Household, add an extra $1,550 (for age or
for blindness) to your standard deduction. If you are age 65 or older or blind
and your filing status is Married Filing Jointly, Married Filing Separately, or
Qualifying Widow(er), add an extra $1,200 (for age or for blindness) for each
qualifying taxpayer to your standard deduction.
When determining if you
qualify for the additional amounts for taxpayers age 65 and older, note that you
are considered to be age 65 the day prior to your actual birthday. Taxpayers
born on January 1, 1950 are considered age 65 on December 31,
Retirement Plans and IRAs
Generally, after age 59 and one
half, you are able to take distributions from your retirement plan and your IRA
without any penalty. Many pension plans allow you the option to receive all the
funds in one lump-sum or roll over all or part of the funds into an IRA. If you
roll over your pension into an IRA, you will have the ability to control your
own investments and to control how much money you want to withdraw and
As long as you are working, you may contribute to a pension plan.
You cannot contribute to your traditional IRA once you reach age 70 and one
half, even if you are still working. You may continue to make contributions to a
Roth IRA as long as you are working.
Generally, the most that can be
contributed to any type of IRA in 2014 is $5,500. However, if you are age
50 or older, you can contribute up to $6,500. Your contribution cannot be more
than your taxable compensation.
Distributions from pension plans are
generally required when you retire or upon reaching age 70 and one half,
whichever is later. Traditional IRA distributions must begin at age 70 and one
half. There are no required distributions for Roth IRAs.
is based on the value of your plan (either the individual pension plan or all
traditional IRAs combined) and life expectancy.
You may be able to elect an optional method of calculating
the tax on lump-sum distributions received from qualified retirement plans. If
the plan participant was born before January 2, 1936 and you received the entire
plan balance in one year, you may qualify for the 10-year tax option. This
option generally will result in a lower tax on the distribution.
You may be eligible for the following tax credits:
for Dependent Care Expenses
If you or your spouse are unable to care for
yourself and outside care is needed while the other spouse is working, you may
qualify for a tax credit. The credit is based on a percentage of the amount you
pay for care. The maximum credit for the care of one qualified person is $1,050.
The maximum for two or more qualifying persons is $2,100.
Credit for the
Elderly or the Disabled
If you were age 65 or older at the end of the tax
year, or if you were under age 65 but retired on permanent and total disability
and received taxable disability income, you may qualify for this credit. Your
adjusted gross income must be less than $17,500 ($25,000 if Married Filing
Jointly and both spouses qualify, $20,000 if Married Filing Jointly and only one
spouse qualifies, or $12,500 if filing Married Filing Separately and you lived
apart from your spouse for the entire year). Also, your nontaxable Social
Security benefits and other nontaxable pensions must be less than $5,000 ($7,500
if Married Filing Jointly and both you and your spouse qualify, $5,000 if
Married Filing Jointly and only one spouse qualifies, or $3,750 if filing
Married Filing Separately and you lived apart from your spouse for the entire
year). If you are Married Filing Separately and lived with your spouse at any
time during the year, you cannot take this credit.
If the total of half of your Social Security benefits plus all
your other income, including tax-exempt interest, is more than the base amount
for your filing status, some of your Social Security benefits may be taxable.
Your base amount is:
- $25,000 if you are Single, Head of Household,
Qualifying Widow(er) with Dependent Child, or Married Filing Separately and did
not live with your spouse at any time during the year
- $32,000 if you are
Married Filing Jointly
- $0 if you are Married Filing Separately and lived
with your spouse at any time during the year
If you are Married
Filing Jointly, you and your spouse must combine your incomes and your Social
Security benefits to determine whether any of your combined benefits are
taxable. Even if one of you did not receive any benefits, you must add your
incomes together to determine whether any of the benefits received by you or
your spouse are taxable.
The IRS provides a worksheet to use to calculate
the taxable amount of your Social Security benefits.
from employment are allowed for those who reach the defined Social Security full
retirement age without reducing the amount of Social Security benefits received.
This does not impact your income tax return directly except that you may receive
more income and therefore have more taxable Social Security
Life Insurance Proceeds
Life insurance proceeds paid to
you as a named beneficiary are not taxable. Any earnings from the investment of
the proceeds are taxable. Any payments made to you as the beneficiary of a
decedent's employer retirement plan or an IRA are taxable income to you, but the
10% additional tax for early withdrawal is not imposed.