12 Overlooked Tax Deductions for Retirees That Could Save You Money

Explore the overlooked deductions that could boost your retirement budget.

An elderly couple is sitting in the lounge of their house with documents, planning their tax and home budget with the help of a laptop and calculator.
Updated June 6, 2024
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Living on a fixed income can be challenging, especially when taxes come into play. That's why, for retirees, knowing how to optimize their tax benefits is crucial. 

The good news? The IRS offers a number of breaks specifically designed to help older Americans get ahead financially

Here are 12 tax breaks you should know about to stretch your retirement dollars further.

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Boosted standard deduction

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The IRS’s standard deduction is an excellent way for many Americans to reduce their taxable income. For the 2023 season, it’s $13,850 for single filers and $27,700 for married couples.

But those who are 65 and older or blind get an extra boost. That means an extra $1,850 for single filers 65 and up and $1,500 for married couples.

Charity contributions

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Giving to charity is an excellent thing to do and a great way to reduce your tax burden because you may be able to claim deductions for charitable donations.

Seniors aiming to lower their taxable income through charitable giving should explore a qualified charitable distribution (QCD), a tax-free transfer from their traditional IRA to a charity. 

This method is especially advantageous for those over 70 1/2, which allows direct donations of up to $100,000 annually.

Credit for the elderly or the disabled

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The IRS’s tax credit for seniors or the disabled may allow you to reduce a notable amount of your tax obligation.

It’s distinct from deductions that reduce taxable income. And if the deduction goes over what you owe the IRS, it can lead to a tax refund. 

To qualify, you must be 65 or older or permanently disabled. Income limits apply, varying annually. This is a good one to check with your accountant.

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Estate and gift tax exclusions

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This probably isn’t for most of us, but estate and gift tax exclusions are a legal way to dodge tax obligations if you have a lot of money in your accounts.

You can pass up to $12.9 million to heirs penalty-free ($25.8 million for married couples filing jointly). And then there’s the annual gift tax exclusion, allowing you to gift up to $17,000 per heir without having to report it.

Exemption for Social Security

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Social Security earnings are often tax-exempt for older adults. If you’re filing as single with total earnings below $25,000, you don’t usually owe federal income tax. Only half of the benefits are taxable for earnings between $25,000 and $34,000.

The threshold for married couples filing jointly is $32,000, with 50% of benefits taxed for incomes between $32,000 and $44,000. 

Those exceeding the 50% threshold may have 85% of benefits taxed. But, good news: Only around 40% of Social Security beneficiaries pay taxes on their benefits.

Filing thresholds

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The IRS’s filing thresholds change significantly after someone turns 65. If you’re single and under 65, you must file a return if your income is $12,950 or higher. But that requirement gets nudged up quite a bit to $14,700 if you’re single and 65 or older. 

The ratios are similar for those who are married: It’s $25,900 for those under 65 who are married filing jointly but jumps to $27,300 if one spouse makes that or over and $28,700 for both.

Long-term care

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Long-term care premiums can be deducted as a medical expense. These deductions increase with age. That means people between 51 and 60 can deduct $1,790. 

Those aged 61-70 can deduct $4,770, while those 71 and older can deduct $5,960. This deduction generally applies to traditional long-term care policies. It’s always a good idea to check with your accountant regarding life insurance policies.

Medicare premiums can be deducted

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This is for self-employed retirees. It covers Medicare Part B and D and the expenses for supplemental Medigap policies or a Medicare Advantage plan.

It's dependent on you owning a business as a sole proprietor, partner, LLC member, or S corporation shareholder with at least 2% ownership. It doesn't face a threshold like itemized medical expenses. 

But there are conditions: You must have business income, and it doesn't apply if your health insurance is covered by someone else.

Saver’s credit

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It doesn't have to be all deductions. Sometimes, opting for a tax credit is the smart move, and the saver's credit, or retirement savings contributions credit, stands out.

It's not exclusively for retirees, which might cause them to miss out. This credit benefits any eligible taxpayer actively contributing to a retirement account, extending its reach to retirees still making contributions. 

As long as they meet other eligibility criteria, retirees can take advantage of this credit, effectively reducing their tax bill dollar for dollar.

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State tax exemptions for seniors

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Federal taxes aren’t the only thing older Americans have a chance to duck — state taxes can rear their ugly head, depending on where you live.

However, some states provide tax advantages to seniors and often exempt Social Security earnings. 

South Carolina, for example, offers a slew of deductions for older Americans, including tax exemption for Social Security benefits, with an additional exclusion of up to $10,000 on retirement income for individuals aged 65 and above.

Traditional IRA contributions

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You're never too old to contribute to your retirement. The SECURE Act was passed by Congress in 2019. It eliminated the age limit for contributing to a traditional IRA. Retirees earning income can contribute and deduct that contribution from their taxes.

There's no maximum age for contributing to a Roth IRA, but those contributions are not tax-deductible. The flipside is withdrawals are tax-free if you stick to IRS rules for Roth accounts. Bear in mind that traditional IRA withdrawals are considered taxable income.

Wait on your RMDs

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RMDs, or required minimum distributions, can be a huge pain if you’re retired. But you can postpone them to a certain degree.

Before you reach 59 1/2, early withdrawals typically incur an additional 10% tax. Delaying withdrawals until mandatory at age 73 or 75 (depending on when you were born) effectively avoids this extra tax. Those turning 74 in 2033 or later have an RMD age of 75.

Bottom line

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In your golden years, maximizing tax benefits is crucial — and the IRS offers a range of tax breaks specifically designed for older Americans.

From boosted standard deductions to exemptions for Social Security, savvy retirees can significantly reduce their tax burden and avoid throwing away money.

Whether utilizing charitable contributions, exploring estate and gift tax strategies, or taking advantage of state tax exemptions, understanding and leveraging these tax benefits is essential for financial well-being in retirement.

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Will Vitka

Will Vitka is a D.C. area reporter and writer. He previously worked for WTOP, The New York Post, Stuff Magazine, and CBS News.