The deadline for filing your taxes is fast approaching. The good news is that, for many seniors, a big tax refund will be on the way because of changes made by the One Big Beautiful Bill Act.
Specifically, the legislation introduced a new $6,000 deduction.
Unfortunately, not all seniors will qualify, though. Here are four factors that could prevent you from potentially claiming this deduction and benefiting from the tax savings.
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1. Your income is too high
Your income is the first big reason you could be disqualified from the new tax deduction. That's because there are strict income limits to be eligible:
- If you are a single tax filer, your eligibility begins to phase out with a modified adjusted gross income of $75,000 or higher
- If you are a married joint filer, eligibility begins to phase out with a MAGI of $150,000 or higher
- Eligibility is eliminated once your MAGI is $175,000 for single filers or 250,000 for joint filers
Check your MAGI to see if you earn too much to reduce your taxable income by claiming this deduction.
2. You are under 65
Age could be another disqualifying factor. You must be 65 or over if you want to claim the $6,000 deduction. If you're under that age, you are not eligible to claim any part of it.
3. Your tax filing status is married filing separately
If your tax filing status is married filing separately, you will not be eligible to claim the $6,000 in tax savings. This is true regardless of your income.
Married filing separately can restrict your eligibility for other deductions as well, so be sure to confirm with an accountant that this filing status is right for you.
4. You have no tax liability
The new $6,000 tax break is a deduction, not a credit. As a result, you won't get any benefit from it if you have no tax liability.
Deductions only reduce your taxable income. If you already have no taxable income after you claim your standardized or itemized deductions, you don't benefit from the new deduction at all.
Many seniors who receive most of their income from a Roth IRA do not have much taxable income. The same is true for people who rely heavily on Social Security to support them. So, unless you're getting a reasonable amount of money from distributions from taxable retirement plans, this deduction may not help you much at all.
If you don't qualify for the deduction, don't despair -- especially if the reason you don't qualify is that you earn too much or are too young (both good problems to have). If you do qualify, then make sure to use the deduction wisely. Consider investing, paying down debt, or building up your emergency fund to improve your long-term financial picture.
