There is no age limitation on paying taxes. Federal income tax is incurred whenever you earn taxable income. However, people age 70 may see their income taxes decrease or be eliminated entirely because the income they now earn has changed and decreased. Most people age 70 are retired and, therefore, do not have any income to tax. Common sources of retiree income are Social Security and pensions, but it requires significant planning prior to the taxpayer turning age 70 in order to not have to pay federal income taxes.
When People Have to Pay Taxes
In general, you have to pay taxes when your taxable income is greater than your personal exemption plus your standard deduction. In 2010, if you are unmarried, that amount is $9,350. So, in order to not pay taxes after the age of 70, you need to make sure that your taxable income for the year is less than the sum of your exemption and standard deduction.
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If Social Security is your only source of income, it is not taxable. However, if you make income in addition to Social Security, those benefits may be taxable. To figure out if some of your benefits are taxable, add one half of your total Social Security benefits to all of your other income, including your tax exempt income and any other income that is excluded. Compare that amount to your base amount. In 2010, the base amounts were $32,000 for a married couple filing jointly, $0 for a married couple filing separately but who lived together and $25,000 for every other taxpayer. If your income meets these criteria, you need to look at the related worksheet in your 1040 instructions to calculate the taxable amount of your benefits.
Pensions are a form of annuity, or a series of payments made during a year, that can be a source of income for elderly or retired individuals. A pension is taxable to the degree that it is a recovery of original taxed contributions from the taxpayer. For example, a pension that was provided by a former employer and the taxpayer did not contribute to it is entirely taxable, and the entirety of what was received during the year should be included as income on the 1040. However, a pension that a taxpayer contributed to while he was working is only partially taxable. If you have a pension and contributed to it in the past, complete the pension worksheet in the 1040 instructions to determine how much of your pension payments are taxable.
For complex returns, consult with a certified public accountant (CPA) or licensed attorney, as she can address your individual tax needs. Be sure to keep your tax records for at least seven years to protect against the possibility of future audits. Every effort has been made to ensure the accuracy of this publication, but it is not intended to be legal advice. Each individual situation is different and should be discussed with an expert and/or lawyer.