The best advice is to know when you don’t know something. That may seem silly, but it’s the first step to getting our questions answered. When it comes to taxes, there’s a lot we might not know. How much do we owe? What credits do we get? When’s the latest I can file? Questions like these can cause a lot of confusion, but luckily, there is one thing we do know — where to find the answers.
If you have questions about taxes, it’s best to ask the tax people. The IRS is the source for all answers, and it even offers tax prep tips for seniors to get ahead. Their tips are easy to understand and can help you organize and save on your taxes:
Prep Tip # 1: Claim All the Credits You Can
Tax credits help to lower your taxes by subtracting from what you owe. The Elderly or Disabled tax credit is just one example of extra credits available for seniors. It can amount to several thousand dollars if you might have the requirement to claim the credit. If you meet the requirements for a credit you can claim it and lower your overall tax liability. Other credits, like the Child Care Credit, may apply to your situation.
Prep Tip #2: Know What’s Taxable
Is Social Security taxable? Yes, it is but it depends on your benefits. Your retirement income, like your Social Security benefits, may be taxable if your “combined income” is within or over a certain range. To help check if your benefits are taxable, use the IRS portal to your advantage. Understand what benefits and income are taxable and non-taxable so you can file correct and not overpay.
Prep Tip #3: Manage your Savings
A required minimum distribution (RMD) is when you must withdraw money from a pension plan, IRA, 401k, etc. due to your age. It depends on your birthday, but generally you must perform a RMD at age 72. Pension plans and retirement accounts might not be fully taxable if the money was taxed as it was put into the account. If not, then it is taxable when you withdraw it. If you withdraw the lump sum of your account, or don’t roll it over into a new account, you could be facing more taxation. It is vital to communicate with an accountant or retirement professional about the tax liability a pension plan can face if withdrawn too quickly. The IRS offers a cheat sheet that helps you ask and answer these questions.
Tax prep tips are many, by the best thing you can do is stay organized and ask questions when you don’t know something. There are dozens of other questions about taxes, benefits, and how they interact. But knowing where to find the information you need clears up any confusion. The Council for Retirement Security wants to help Seniors protect their benefits, so they can enjoy their retirements and thrive, taxes and all.