2016 Tax Deduction Tips for Seniors
The IRS defines a “senior” as someone who is age 65 or older. If you fit this bill, you may be able to save some money on your taxes by deducting “senior eligible” items and services as well as receiving credit if you fit specific profiles.
Below, we touch on a few key deduction and credit areas and provide links to more detailed IRS information.
Note: It is important to speak with a certified financial professional before making any financial or tax decisions.
Tax Benefits For Seniors
There are four main tax benefit areas available to you if you are 65 and older. The 2016 limits and any changes are outlined in detail in IRS publication 554.
- Higher filing threshold for gross income. You must be age 65 or older at the end of the year to get this benefit. You are considered age 65 on the day before your 65th birthday. Therefore, you are considered age 65 at the end of the year if your 65th birthday is on or before January 1 of the following year. The tax exemption amount for 2016 filing has increased to $53,900 ($83,800 if married filing jointly or qualifying widow(er); $41,900 if married filing separately). You lose at least part of the benefit of your exemptions if your adjusted gross income is above $155,650 for married individuals filing separate returns; $259,400 for single individuals; $285,350 for heads of household; and $311,300 for married individuals filing joint returns or qualifying widow(er)s. For more information, see Phaseout of Exemptions in IRS publication 501.
- Higher standard deduction. If you don’t itemize deductions, you are entitled to a higher standard deduction. The initial deduction if you or your spouse were born before January 2, 1952 is: $6,300 for single or married filing separately; $12,600 for married filing jointly or qualifying widow(er); and $9,300 for head of household. Then, depending on you and your spouse’s ages, or if one or both of you are considered legally blind, you get to multiply that number by $1,250 ($1,550 if single or head of household), and add it to the initial standard deduction to find your 2016 standard deduction total.
- Credit for elderly or disabled, if eligible. If you qualify, you may benefit from the credit for the elderly or the disabled. To determine if you qualify and how to figure this credit, see Credit for the Elderly or the Disabled (scroll to p. 26, chapter 5).
- Lower Threshold for Medical/Dental Expenses. If you or your spouse are 65 or older, you can deduct the part of your medical and dental expenses that exceed 7.5% of your adjusted gross income. More on medical expense deductions, below.
Medical Expense Deductions and Exemptions
One of the largest areas of expense for seniors is medical care. Fortunately, you can take advantage of a variety of deductions in this category. The IRS defines medical care as:
- The diagnosis, cure, mitigation, treatment or prevention of disease, or for the purpose of affecting any structure or function of the body;
- Transportation primarily for and essential to medical care;
- Qualified long-term care services;
- Insurance, including amounts for supplementary medical insurance and qualified long-term care insurance.
Medicare benefits received under Title XVIII of the Social Security Act do not need to be included in your gross income. This includes basic (part A – Hospital Insurance Benefits for the Aged) and supplementary (part B – Supplementary Medical Insurance Benefits for the Aged).
You can include in medical expenses amounts you pay for the cost of inpatient care at a hospital or similar institution if a principal reason for being there is to receive medical care. This includes amounts paid for meals and lodging.
Other medical expenses that can be deducted, with stipulations, include medical insurance premiums, medicine, transportation and nursing services. See IRS publication 554 for more details.
Long-term care items and pre-paid medical costs are also considered tax deductible by the IRS. For residents of Life Plan Communities (formerly known as Continuing Care Retirement Communities), this could mean a portion of the lump sum entry fee and a portion of the monthly fee may be deductible as medical expenses. According to AARP, the amount of the per capita medical deduction is calculated annually, based on the community’s cost for providing care services.
Social Security Benefits
Another area where aging adults can sometimes receive tax benefits, depending on your filing status and other income, is Social Security.
The Social Security Administration (SSA) provides benefits such as old‐age benefits, benefits to disabled workers, and benefits to spouses and dependents. Social Security benefits must be included in your gross income if: you are married filing a separate return and you lived with your spouse at any time in 2016, or one-half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly).
However, supplemental security income (SSI) benefits and lump‐sum death benefits (one‐ time payment to spouse and children of deceased) aren’t subject to federal income tax. See IRS publication 915 for more information.
Help With Filing Your Return
When it comes down to actually filling out and filing your tax return, the vast array of forms and informational publications can be quite confusing and overwhelming. And while all of the necessary IRS forms and pubs are now easily accessible online, everyone’s situation is different. Sometimes it’s just easier to have a professional tax advisor help you out.
The American Association of Retired Persons (AARP) Tax-Aide program offers free tax help to any senior age 60 and over. For the location of an AARP Tax-Aide site in your community, call 1-888-227-7669.
The IRS provides free tax filing assistance to low-income seniors age 60 and older through Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE). For the VITA/TCE site nearest you, contact your local IRS office.
For more information on free filing help and the above-mentioned programs, see Preparing and filing your tax return under How To Get Tax Help on IRS Publication 554.
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