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As you cross the age of 50, there are several tax breaks designed to benefit you financially. Many of these incentives are often overlooked but can significantly reduce your tax burden. Here’s a list of 11 lesser-known tax breaks that individuals over 50 should be aware of.
Increased Standard Deductions
Once you reach 50, and especially after 65, you’re eligible for a higher standard deduction than younger taxpayers. This increase can reduce your taxable income substantially.
Increased IRA Contributions
People over 50 can make “catch-up” contributions to their Individual Retirement Accounts (IRAs). This allows for contributions above the standard limit, helping to boost retirement savings and providing tax benefits.
Increased 401(K) Contributions
Similar to IRAs, those over 50 are allowed to contribute additional funds to their 401(k) plans. These catch-up contributions can lead to significant tax savings.
Medicare Premium Deduction
Medicare premiums can be deducted if you’re self-employed, reducing your taxable income. This deduction is often overlooked but can be substantial.
Increased Health Savings Account Contributions
If you have a high-deductible health plan with a Health Savings Account (HSA), being over 50 allows for additional contributions above the standard limit, offering more tax-saving opportunities.
Penalty-Free IRA Withdrawals
After reaching age 59½, you can make withdrawals from your IRA without incurring the 10% early withdrawal penalty, offering more financial flexibility.
Property Tax Benefits
Many states offer property tax reductions or exemptions for individuals over a certain age, typically 50 or 65. These benefits can lead to substantial savings in homeownership costs.
Social Security Income Exclusion
Depending on your overall income, a portion of your Social Security benefits may not be taxable. Understanding how this works can result in tax savings.
Long-Term Capital Gains Exemption
Older taxpayers might qualify for exemptions or reductions in taxes on long-term capital gains under certain conditions, helping to preserve more of their investment earnings.
Charitable Contributions from IRAs
Those over 70½ can transfer up to $100,000 tax-free from an IRA directly to a qualified charity. This can count as your Required Minimum Distribution (RMD) without being included in your taxable income.
Tax Credits for the Elderly or Disabled
If you are over 65 or retired on permanent and total disability, you may qualify for the Credit for the Elderly or the Disabled, offering a direct reduction in tax liability.
Being aware of these tax breaks can make a significant difference in your financial planning and tax liabilities as you age. It’s always a good idea to consult with a tax professional to understand how these benefits apply to your specific situation and to maximize your tax savings.