If you’re a senior citizen, tax season can feel a bit overwhelming — but there’s good news! The $6,000 tax deduction for seniors is designed to help ease the financial burden and allow older adults to keep more of their retirement income. Here’s a brief overview of what it means and how it works.

What Is the Senior Tax Deduction?

The $6,000 tax deduction is an additional standard deduction available to individuals aged 65 and older. It’s applied on top of the regular standard deduction you already claim when filing your taxes. This means that if you don’t itemize deductions, you’ll still enjoy a higher reduction in your taxable income simply based on your age.

Why It Matters

This deduction can lead to notable tax savings, especially for retirees living on fixed incomes. By lowering your taxable income, you may:

• Pay less in federal income tax overall

• Preserve more of your Social Security or pension income

• Reduce your exposure to higher tax brackets

Who Qualifies?

You can claim the extra $6,000 deduction if:

• You’re 65 or older by the end of the tax year

• You meet the filing requirements for seniors under IRS rules

• You do not claim yourself as a dependent on another person’s return

Final Thoughts

The $6,000 tax deduction is one small but meaningful way to recognize the financial realities seniors face. If you’re unsure whether you qualify or how to claim it, please contact us and we’ll be happy to review your situation.

Bottom line: This deduction could make a real difference — a few thousand dollars off your taxable income can translate into hundreds saved on your tax bill.

Income: the typical brackets we hear about – calculated based on your adjusted gross income less your deduction (standard or itemized). Our current brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 37%

Employment Tax:

                Social Security: 12.4%

                Medicare: 2.9%

Net Investment tax: 3.8% on income over 200,000 for an individual

 When an individual is an employee and receives a W-2, the employer pays ½ of the employment taxes

                The Employee pays 6.2% of their wages for social security and 1.45% for medicare through their withholding on their paychecks

                The Employer pays the same

When an individual is self employed (schedule C or partnership), the individual pays all of the employment taxes (total of 15.3% of the business net income).

 As an employee, you complete a W-4 which determines the withholding. Sometimes it’s enough and sometimes it’s not. When it’s not, you can adjust your withholding by filling out the W-4 again and requesting a specific dollar amount of additional withholding.

When you are self-employed, no taxes are withheld. That means that you are responsible for submitting all the employment and income tax amounts yourself. This is done through estimated payments.  These can be submitted quarterly (at a minimum to avoid IRS penalties), or, if it’s easier to remember, monthly.

 Individuals with W-2 income from more than one job or with substantial investment income (interest, dividends or stock sales) may need to either adjust their withholding via the W-4 or make estimated payments.

If the surge in gas prices is cutting into your bottom line, there’s some tax relief available.. The IRS has adjusted the mileage rate you can claim for business vehicle use. As of July 1, 2022 the rate you can claim is 62.5 cents per mile for your vehicles. As always you should be tracking business miles driven as a part of the overall miles driven during the year. In addition, with this mid-year rate change, you need to track the business miles driven between Jan 1 and Jun 30 separately from the miles driven between Jul 1 and Dec 31.

Questions: Give us a call or send an email.

If you are a shareholder/officer of an S-Corporation, it is critical that you understand the IRS expectation on paying yourself as an employee. Many people form S-Corporations with the idea that they will save money on employment taxes by taking most of their income as distributions instead of salary. Needless to say, the IRS frowns on this idea.

Much like visualizing the desired outcome when we’re training our dogs (sit, down, heel etc.), we need to visualize some tough questions in regards to our finances – and be honest in our answers.

For many people, taxes are frightening, much like a blizzard. When viewed from the perspective of far off in the future, they are like watching a snowstorm from inside your warm house. But it’s time to go out in the snow… it’s 2019 now and we need to be prepared. Let’s see how we can avoid being buried.

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