Filing Tips for Older Taxpayers

The economy and volatile nature of the stock market have created financial challenges for many older taxpayers. If you feel like there's been an assault on your retirement nest egg, you're not alone. Here are ways to save money at tax time and avoid common filing mistakes that can cost you.

Take a higher standard deduction

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If you don't itemize deductions, the IRS gives you a standard deduction amount that reduces your taxable income. For single and married filers, the deduction amounts are $5,700 and $11,400, respectively. If you're 65 or older, don't forget to claim an additional deduction of $1,100 for joint filers ($1,400 if single). Joint filers in this situation can reduce their taxable income by another $2,200 — not a bad savings! Unfortunately, if you itemize your deductions, there's no corresponding additional deduction.

Use stock losses to offset other income

Many of us sold stock at a loss in 2010. While no one likes losses, at least you can use capital losses up to $3,000 to offset other ordinary income. Even though this maneuver won't make up for your losses, it will lower your tax liability and mitigate some of the pain. By the way, if your net losses exceed $3,000, you can carry the excess amount over to use in 2011.

Review pension, retirement distributions

Pay particular attention to your state tax rules for pension distributions. Many states exclude from taxation certain types of pensions or allow partial exclusions. For example, some states exclude up to $20,000 of retirement income and others may exclude civil service employees' pensions in full. The rules vary from state to state, so it's important to do a little research to ensure you're not reporting more income than is required.