Recently, economic times have been tough on us all, but probably no tougher on any other group than senior citizens. Senior’s have seen their savings shrink while their expenses rise and they need to be careful that all of this does not catch them in a tricky tax situation, to boot.
Seniors need to watch out for the “Make Work Pay” credit. This credit proposes to reduce taxes for 95% of families while opening a loophole that can suck in unaware seniors and leave them owing taxes they had no clue they would owe. Non-working senior citizens do not qualify for the credit even though it may automatically add 6.25% to their withholding. If such affected seniors do not change their withholding, they can wind up owing at tax time.
There are specific procedures to determine whether your social security payments are taxable or not. Seniors need to know if their social security income is taxable. Failure to pay taxes owed on social security income can result in IRS underpayment fines. Those fines added on top of any tax owed plus interest could soon become trouble for a senior on a fixed income at tax time.
If you should have withholding taken from your pension disbursements depends on many things, like your number of dependents, what status you file under, additional sources of income, how many pension payments you receive, and your personal exemptions. If you need to withhold and you do not withhold enough, you could face owing back taxes to the IRS.
Remember to take full advantage of all the exemptions and credits offered you by the IRS. Don’t miss any possible deduction of your total tax liability.
If you are planning to get into your retirement account before age 60, remember that you will face an additional 10% tax on the money you withdraw. The Roth IRA is an exception to this along with some others. Learn how you might avoid this tax before deciding to take the money.
The best and easiest way to avoid the IRS back taxes as a senior citizen is – have a tax professional prepare your income tax return. Tax professionals are trained and accredited and have the knowledge to work with you on your particular tax obligations. They will know the best methods of obtaining every legitimate tax exemption, deduction, and credit you deserve. They will know how to help you avoid making any decisions that might lead to owing the IRS back taxes.
Everybody has to pay tax in the US – senior citizens included. Sometimes due to some misunderstanding about tax laws, senior citizens make mistakes in calculating their tax liability. Naturally, IRS will follow them and try to recover back taxes. In fact is, is easy for senior citizens to pay all their taxes without any hassle. How they should handle their taxes? Chintamani Abhyankar provides useful tips.
Chintamani Abhyankar, is a well known expert in the field of finance and taxation for last 25 years. He has written many books explaining inside secrets of the magic world of personal finance. His famous eBook Stop donating your money to IRS [http://www.planningyourtax.com] which is now running in its second edition, provides intricate knowledge and valuable tips on personal finance and income tax.
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