New $6000 Senior tax deduction - What it means for you? Wealth Lawyer Explains

Summary

This video explains the new tax proposals affecting seniors aged 65 and older, focusing on the additional deductions in the Senate and House bills. While the promise of no tax on Social Security wasn't fulfilled, seniors will benefit from new tax deductions: $6,000 per person in the Senate bill and $4,000 in the House bill. The video also covers strategies like Qualified Charitable Distributions from IRAs, which can help seniors reduce taxable income. Viewers are encouraged to be proactive in tax planning to maximize savings, even if the new bills are not passed.

Takeaways

• 😀 The new tax bill includes additional deductions for seniors, but does not fulfill Trump's campaign promise of no tax on Social Security.
• 😀 The House bill offers a $4,000 deduction for individuals 65 and older, while the Senate bill proposes a $6,000 deduction per person.
• 😀 These deductions are available in addition to the standard deduction, and can still be claimed even if you itemize deductions.
• 😀 The tax code already includes an additional deduction for those over 65, which adds to the new proposed deductions under the House and Senate bills.
• 😀 The Senate bill aims for a $6,000 deduction per person, but it is only available for tax years 2025 through 2028.
• 😀 Social Security is already partially taxed (up to 85%) for individuals with higher income, but no full tax exemption has been implemented.
• 😀 The $6,000 Senate deduction would result in significant tax savings, potentially lowering taxable income for seniors by over $15,000.
• 😀 Seniors in a 20% federal tax bracket could save around $2,400 in taxes by claiming the $12,000 deduction (for a married couple over 65).
• 😀 Despite the tax breaks, the ideal goal of no tax on Social Security remains unachieved, though deductions help reduce the overall tax burden.
• 😀 Strategies such as Qualified Charitable Distributions (QCDs) from IRAs can help seniors reduce taxable income without affecting standard deductions.

Q & A

What is the new tax bill's impact on seniors, particularly those 65 and older?

The new tax bill includes additional deductions for seniors aged 65 and older. The House bill proposes a $4,000 deduction, while the Senate bill proposes $6,000. These deductions are in addition to the standard deduction, providing tax savings for seniors, though it does not fulfill President Trump's campaign promise of no tax on Social Security.

How do the deductions for seniors work under the new tax bill?

The deductions are not tax credits, but deductions that reduce taxable income. If seniors choose the standard deduction, they will receive an additional $1,600 per individual over 65. The new bills propose extra deductions on top of that, with the Senate offering $6,000 per person, and the House offering $4,000.

Do seniors need to take the standard deduction to receive these additional deductions?

No, the additional deductions can be taken whether or not seniors choose the standard deduction. They can also be claimed if seniors itemize their deductions.

How would these deductions affect a couple earning $100,000 in 2025?

For a married couple both over 65, earning $100,000 in 2025, they would benefit from the standard deduction ($30,000) plus an additional $3,200 for their age. If the Senate bill passes, they would receive an additional $12,000, totaling $45,200 in deductions. This reduces their taxable income to $54,800.

What is the difference between the House and Senate bills regarding senior deductions?

The House bill proposes a $4,000 deduction for seniors aged 65 and older, while the Senate bill proposes a higher $6,000 deduction. Both are above the existing standard deduction and would be available even if seniors do not take the standard deduction.

How long will these additional deductions last if the bills pass?

The additional deductions under the Senate bill ($6,000 per person) and the House bill ($4,000) are only valid from tax years 2025 to 2028. After 2028, the deductions will revert to the current $1,600 per individual for those over 65.

How much tax would a senior couple save if the Senate bill passes and they are in the 20% tax bracket?

If the Senate bill passes and the couple is in the 20% tax bracket, the additional $12,000 deduction would save them about $2,400 in taxes. This is because the $12,000 would be subtracted from their taxable income, reducing the amount subject to tax.

What are some other strategies for tax savings available to seniors, regardless of the new tax bill?

One strategy is the Qualified Charitable Distribution (QCD), where seniors can donate directly from their IRA to a charity. This satisfies their required minimum distribution (RMD) without adding the distribution to taxable income. This is particularly useful for seniors who take the standard deduction.

How does a Qualified Charitable Distribution (QCD) benefit seniors from a tax perspective?

A QCD allows seniors to donate from their IRA directly to a charity, which helps fulfill RMD requirements without increasing taxable income. This is beneficial because the distribution is not included in their taxable income, even though they do not get a charitable deduction for the donation.

What is the significance of self-directed IRAs in tax planning for seniors?

Self-directed IRAs allow seniors to invest in non-traditional assets like real estate or private funds. This provides more flexibility in retirement planning, and can be part of an overall strategy to reduce taxes by making smart investment choices within the IRA structure.