[Last updated November 26, 2024]
Tax preparation for seniors can be confusing and often difficult. After all, many seniors have several forms of income, such as Social Security benefits, retirement account distributions, pensions, and investment income, just to name a few. On top of that, navigating the filing process can be challenging. To alleviate some of your tax-related stress, we’ve compiled a list of things seniors can do to prepare for tax season.
Find out whether you need to file taxes
Unfortunately, the answer to whether seniors need to file taxes isn’t as clear as you’d think. In short, it depends. As with anything tax-related, your circumstances are going to dictate whether or not you will have to file a tax return as a senior.
For the tax year 2024, individuals aged 65 and older typically will not need to file a tax return if their gross income is less than $16,550 as a single filer, $30,750 if filing jointly and only one spouse is 65 or older, or $32,300 if filing jointly and both spouses are 65 or older. These thresholds apply to taxable income and do not include certain nontaxable sources, such as some portions of Social Security benefits. However, you will have to research to determine how much money you have earned and whether you need to file a tax return. You can see some other requirements in our article about whether seniors need to file taxes or use the Internal Revenue Service’s interactive tool to determine if you need to file taxes.
Take your required minimum distributions (RMDs)
If you have any tax-advantaged retirement accounts, such as a traditional 401(k) or individual retirement account (IRA), you may have to take a required minimum distribution (RMD). Typically, RMDs are only required once you turn 73, so these may not apply to you, but it’s important to be aware of this requirement. If you don’t take an RMD when you’re required to, the amount you were required to withdraw will be taxed at a rate of 25%.
Determining whether you need to take an RMD and calculating your RMD can be tricky. The IRS provides an in-depth overview of who is subject to RMDs and resources to help you calculate your RMD so you can plan accordingly.
Collect the proper tax documents
Before you start working on your tax return, you must assemble the documentation needed to complete it. The documents you need will vary depending on how you earn your income, but the most common ones you’ll need are:
- W-2s.
- 1099s.
- Investment profit/loss statements.
- Receipts for tax-deductible expenses and donations.
- The previous year’s tax return.
While this isn’t a complete list of everything you’ll need, it will get you started.
When searching for these documents, remember that they probably won’t be ready on the first day of the new year. Often, it can take the companies that generate documents like W-2s and 1099s a couple of weeks (sometimes a couple of months) to send them. You can usually expedite this process by allowing electronic delivery of these documents.
Learn about tax breaks that apply to you
Once you have the necessary documents in order, you should look at the numerous deductions and credits for seniors. There are quite a few available, so you should take advantage of them if you can. After all, reducing your tax burden will free up money you can spend on living expenses or the cost of senior care services.
Keep in mind that there is a difference between a tax credit and a tax deduction. A tax deduction is a reduction of your taxable income, meaning that for each dollar deducted, you will only reduce your federal tax burden by a percentage of that dollar (depending on your tax bracket). A tax credit is a dollar-for-dollar reduction in your tax burden, meaning a $1 credit reduces your tax burden by $1.
Determine who will file your taxes
When preparing for tax season, one of the most important decisions you will make is who will file your taxes. Most seniors have three choices regarding who will file their taxes: themselves, a loved one or family member, or an accountant. Below, we’ve outlined the benefits and drawbacks of each method of filing taxes.
Filing taxes yourself
While filing your taxes yourself is cheaper than hiring an accountant and doesn’t require anyone else’s help, it can be difficult to do correctly. Those with multiple income streams may find doing their own taxes confusing. If you’re willing to accept the challenges that come with filing your taxes by yourself, some resources can make the process easier, such as online filing programs like TurboTax or the IRS Free File. The IRS Free File is a free, guided resource for those earning $79,000 or less. Free File Fillable Forms are free electronic tax forms available for those who make more. Note that this option does not provide guidance.
Enlisting a family member or loved one’s help
Enlisting a family member could be a great solution for those who don’t want to file their taxes by themselves. Family members or loved ones typically will help you file your taxes for free, but they might not have the expertise needed. Those who have more complex tax returns might not want to rely on themselves or a family member for their tax returns.
Hiring an accountant
Hiring an accountant is the best option if you have more complicated tax returns or you simply want the peace of mind that comes with working with a professional. When you work with an accountant, regardless of the complexity of your tax return, you can rest assured knowing your tax return has been submitted correctly. Unfortunately, this does come with a price, with a basic return typically costing a few hundred dollars and a complex return typically costing more.
Beware of scammers
Financial fraud continues to escalate, with consumers reporting losses exceeding $10 billion in 2023, marking a 14% increase from 2022. This upward trend underscores the growing sophistication of fraud schemes and the critical need for heightened vigilance to protect your finances.
If you receive any communications from someone claiming to be a representative of your bank or the IRS, it’s a good idea to stop communications and reach out to the respective entity yourself. Call either your local bank or the IRS at 1-800-829-1040 to speak to someone you know you can trust.
Remember that the IRS typically communicates with people only through the mail. An IRS agent calling you or showing up at your door is rare, so be wary if an “IRS agent” calls or visits you.
Final thoughts on tax preparation for seniors
Although the tax deadline isn’t until April 15, 2025, that date can creep up quickly once the new year comes. When you figure out whether you need to file taxes, gather the right documents, learn what kinds of credits or deductions you can take as a senior, and determine who will file your return, you’ll have a lot of the prep work done. With our tax preparation tips for seniors, you can meet the deadline with less stress and more success.
