Seniors: Act Now to Squeeze the Most From a Big New Tax Break

Lowering your taxable income may help you qualify for a new senior tax break. (Dreamstime)

President Donald Trump’s campaign promise to scrap taxes on Social Security income never progressed in Congress, but many seniors are still getting a new tax break. You can take steps to squeeze the most out of it before year end.

Tax breaks are usually capped at income levels, including a big new one for qualifying seniors age 65 and over by year end: a $6,000 deduction. The tax break passed the Republican-controlled Congress in lieu of eliminating taxes on Social Security income. It’s available in tax years 2025 through 2028.

Reducing your taxable income always means a lower tax bill—or a bigger refund—but this year, lowering it below the eligibility thresholds could save you even more. “It’s almost like a multiplier effect,” says Brian Schultz, a tax partner at Plante Moran in Southfield, Mich.

The senior tax break begins to phase out over $75,000 for individuals and $150,000 for joint filers where both spouses are 65 and older by year end. It completely phases out above $175,000 for singles and $250,000 for married couples filing jointly. For most seniors, your modified adjusted gross income for purposes of this deduction is simply your adjusted gross income.

The $6,000 deduction is available to all eligible taxpayers, regardless of whether they itemize or take the standard deduction. For seniors who take the latter, it sits on top of the extra $2,000 deduction allowed in 2025 for single filers 65 and over, or $3,200 for married couples filing jointly.

It’s a pretty good deal for middle-income taxpayers, and if your income is on the cusp, it pays to adjust it to qualify.

Retirees who live partly on portfolio withdrawals may have more flexibility to adjust their income than full-time company employees. One way to do that: take withdrawals from Roth IRA accounts. Those withdrawals don’t hit your adjusted gross income. If you have one, you could lean more heavily on it to pay the bills for the remainder of the year. If you work part-time, you could voluntarily reduce your hours or your earnings.

Beyond that, older adults can make a contribution to a traditional, pretax individual retirement account. There’s no age limit to making a contribution as long as you have income earned from a job. The tax deductibility of your contribution depends on your income and whether you have access to a 401(k) at work. If you and your spouse (if applicable) don’t have access to a retirement plan through work, you can deduct the full IRA contribution of $8,000 for people 50 and older in 2025.

Charitable giving can also lower your taxable income, particularly if you itemize deductions. And there’s more reason to itemize: Republicans increased the cap on deducting state and local taxes, or SALT, to $40,000 from $10,000, for people making $500,000 or less. If you plan to itemize to take advantage of the new SALT cap, you may be able to reduce your taxable income even more.

Another way to avoid adding to your tax bill is by donating appreciated stock, rather than liquidating the position and contributing to a charity with after-tax proceeds. That can be helpful for taxpayers who don’t itemize charitable deductions.

Say you own tech stocks like Nvidia or Apple in a taxable brokerage account, and the shares have appreciated considerably since you bought them at least a year ago. You might want to pare your position as part of year-end rebalancing. If you sell the stocks, you’d realize a capital gain that will hit your taxable income for the year. If you donate the appreciated stock directly to a charity instead, the gains wouldn’t increase your income. (The charity won’t owe taxes, either.)

While you won’t get the deduction unless you itemize, you will save on the capital-gains tax and potentially bring your income in line with the new senior deduction.

Write to Elizabeth O’Brien at elizabeth.obrien@barrons.com