5 Senior Citizen Income Tax Return Tips
The nation’s sluggish economy has been hard on many Americans, including retirees who are living on a fixed income. If you are one of them, it is important to get your tax return right so your refund is as large as it should be or the amount you owe is as small as possible. If you need help and can’t afford to pay someone to prepare your return, here are some tips to help you file your tax return.
Calculate The Taxable Amount Of Social Security Benefits
The IRS has guidelines to follow when deciding whether your Social Security payments are taxable. The IRS is fine if you want to overpay, but if you don’t pay, you very well may have to pay a fine on top of what you owe. Next time you receive a Social Security check, check the benefit statement to see if taxes are being withheld. If you have no taxes withheld and you have other sources of income, you may have created an under-withholding problem, and it might be worth the money to consult with an accountant to find out what to do to fix it. If you are having taxes withheld, Form 1040 and Form 1040A include a Social Security benefits worksheet that will help you accurately report it on your return. (For more information on how to hire an accountant, see How To Select The Best Income Tax Preparer.)
Figure Out Your Standard Deduction
The standard deduction is an amount that reduces your taxable income and eliminates the need for many taxpayers to itemize actual deductions, such as medical expenses and charitable contributions. If you decide not to itemize your deductions, you can get a higher standard deduction amount if you and/or your spouse are 65 years old or older. If either you or your spouse is blind, you can get an even higher standard deduction. Form 1040 and Form 1040A have instructions that will help you choose the deduction that makes the most sense for you. (To learn more about choosing between standard and itemized deductions, see Standard Or Itemized Deductions: Which Should You Take?)
Apply For Tax Credits If You Are Eligible
If you are eligible for a tax credit, it is foolish not to apply for one. You may be eligible for the Credit for the Elderly or Disabled if you and/or your spouse are either 65 years or older or if you are under 65 and you are permanently and totally disabled. But that’s not all. To be eligible, your income on Form 1040 line 38 must be less than $17,500 or $20,000 (married filing jointly and only one spouse qualifies) or $25,000 (married filing jointly and both qualify). And the non-taxable part of your Social Security or other non-taxable pensions, annuities or disability income must be less than $5,000 (single, head of household), $5,000 (married filing jointly and only one spouse qualifies) or $7,500 (married filing jointly and both qualify). The credit is also based on your age, filing status and income.
If after all this you determine you are eligible for the credit, you must use Form 1040 or Form 1040A. You cannot claim this credit if you use Form 1040EZ. To calculate the credit, use Schedule R, Credit for the Elderly or Disabled. If you want the IRS to figure it out for you, see the instructions for Schedule R on forms 1040 or 1040A.
Figure Out How Much To Withhold, If Anything, From Your Pension
This isn’t always an easy call. It depends on your filing status, the number of dependents you have, personal exemptions, additional sources of income and the amount of retirement payments you receive. If you do need to pay taxes, you need to figure how much to withhold, and here’s the problem: Withholding too much leads to an interest-free loan to the IRS and not withholding enough can result in back taxes and maybe even penalties and interest.
Get Some Help
Even if you prepare your own tax returns every year, it is probably a good idea to have someone look over your return to ensure that you haven’t made any mistakes that could cost you money or get you in trouble with the IRS. If you are a senior who is in the low- to mid-income range, you may be eligible for help preparing your tax return. Two programs, the IRS Volunteer Income Tax Assistance (VITA) and the Tax Counseling for the Elderly (TCE), offer free tax help for those who qualify.
The VITA Program is for anyone who makes $50,000 or less, and VITA sites can be found in community and neighborhood centers, libraries, schools, shopping malls and other public places. To find a site near you, call 1-800-906-9887.
The TCE Program is for those who are 60 or older, and the IRS-certified volunteers specialize in questions about pensions and retirement issues unique to seniors. These volunteers often are retirees associated with non-profit organizations that receive grants from the IRS. For information about the TCE Program, go to this IRS website.
The bottom line is that filing your taxes can be complicated if you are a senior citizen. Therefore, it is important that you do your homework ahead of time so you do not miss out on collecting tax refund money or end up paying the IRS some hefty fines.