If you're a senior aged 65 or older, you could potentially reduce your tax responsibilities next year. The newly introduced "One Big Beautiful Bill" (OBBB) in Trump's tax bill could offer an extra $6,000 standard deduction to seniors.
The scheme is limited to the period ending 2028, so it's crucial to understand and take advantage of this offer swiftly. We delve into the mechanics of the scheme, eligibility criteria and potential implications on your tax-filing approach.
In order to qualify, taxpayers should have reached the age of 65 by the end of the tax year. Both single individuals and married couples filing jointly are eligible. Married couples can avail a joint deduction of $12,000 - $6,000 for each qualifying senior.
Higher-income earners should note that they may not receive the full benefit, as it begins to phase out for income exceeding $75,000 (individuals) or $150,000 (joint-filers). As per Taucier Smalls-West, founder of West Financial Services, LLC, the deduction gradually diminishes and disappears entirely for singles with combined income of $175,000 and married couples earning $250,000.
Importantly, this tax deduction can potentially reduce the taxes you owe on your Social Security benefits, as the IRS taxes these based on your "combined income", i.e. sum of your AGI, pensions, interest, dividends, capital gains and half of your Social Security benefits.
In addition to the existing standard deduction, these new deductions stack seamlessly. For example, seniors who take the standard deduction ($15,750 for singles and $31,500 for couples) can further deduct the additional $6,000 per qualifying senior, leading to a deduction of $23,750 (individuals) or $46,700 (couples).
However, the standard deduction may not always be the best option. For seniors with significant medical costs, substantial charitable contributions, or sizable state and local taxes, itemizing deductions could yield higher savings.
The new tax bill, OBBB, necessitates re-evaluating tax-filing strategies, particularly the choice between standard deductions versus itemization. Planning is vital, especially for seniors with inconsistent incomes.
The senior tax deduction is a major change within the OBBB, focused on offering individual and family tax relief. Individuals approaching or beyond 65 should consult a tax professional for personalized guidance on adapting to this change.