Getting older has its nuisances as your health starts to decline, eyesight and hearing can deteriorate, you start having aches and pains in unexpected body parts. However, it does have its perks. Some of those benefits are in the form of tax breaks that come as you get older.
Seniors have a larger tax deduction
If you are over 65, you get a $1,550 higher standard deduction than someone younger. Furthermore, if your total income as an individual is less than $25,000, you do not pay any taxes on your Social Security. While above that, you start paying income taxes on half of your Social Security above $34,000, you still have 15% that remains untaxed. Even this is a nice little tax break over someone younger. The effect is that seniors pay less in income taxes per dollar of income.
Seniors can deduct medical expenses at a lower percentage
If you are under the age of 65, you can only deduct medical expenses that exceed 10% of your income. However, when you reach age 65, that figure goes down to 7.5% of your income. What makes this a particularly good deal for seniors is the fact that your medical expenses also tend to increase when you get over age 65. This makes this a double tax break because the non-deductible percentage decreases when your expenses increase.
Seniors can earn more without filing taxes
Another tax break for seniors is that an individual over 65 can earn $1,550 more than a younger person before they even have to file taxes. This means that you do not need to take the time or expense to file an income tax return unless you make more than $11,850 as an individual senior or $23,100 as a couple. While you still must file an income tax if you make more, this is still a significant benefit for most seniors.
Those 50 and older contribute more to retirement plans
If you are over 50, you can contribute $6,000 more to a 401(k) plan that is tax-deferred. Now, you do have to pay income taxes on what you withdraw, but deferment does give you a larger account to withdraw from. Consequently, if you are over the age of 50, you can contribute more to your retirement without paying taxes on it as you do so. This is a major tax break because it allows your account to grow even bigger than it would if you had to pay those taxes.
No more early withdrawal penalty at age fifty-nine and a half
Once you reach fifty-nine and a half, you no longer have to pay the 10% penalty for early withdrawal. You can also avoid this penalty at age 55 on a 401(k) associated with a job that you just left. This is a significant tax break if you need the money at this time. You will have to pay income tax on any money you withdraw, but not having to pay the penalty can make a real difference. It is extra money that you do not have to withdraw from your account.
So yes, there are tax breaks for different generations. This is because as you get older your situation changes. Your income changes, your opportunity for income changes, your sources of income change. As a result, there are going to be tax benefits you get at some ages that you do not get at others. If you are younger, remember that most seniors do not get a mortgage deduction or the opportunity to deduct children. So, in general, various ages will get tax breaks that other age groups do not.