What is Colorado's Extra Standard Deduction?
Colorado provides an extra standard deduction for seniors over 65, which can help reduce their taxable income and lower their tax liability. The state's extra standard deduction is a bit more complex than the federal standard deduction, but it can be a valuable benefit for eligible seniors. According to the Colorado Department of Revenue, the extra standard deduction is $360,000 for tax year 2022 and is designed to help seniors offset the costs of living expenses.
Who is Eligible for the Extra Standard Deduction in Colorado?
To qualify for Colorado’s extra standard deduction, taxpayers must meet certain requirements. First, they must be aged 65 or older by December 31 of the tax year. Second, they must have lived in Colorado for six months or more during the tax year, or must have declared Colorado as their home. Additionally, the taxpayer must have earned income in the past tax year or have had distributable health or disability benefits from a pension fund.
See Qualifying Individuals on the Colorado Department of Revenue website for more information.
How Does the Extra Standard Deduction Work in Colorado?
Colorado’s extra standard deduction operates similarly to the federal standard deduction. It provides a fixed amount that can be subtracted from a taxpayer’s adjusted gross income (AGI) to determine their taxable income. However, because the Colorado standard deduction and extra standard deduction are combined, some eligible seniors may qualify for an even larger deduction amount.
For example, let's say a 65-year-old senior in Colorado has an AGI of $80,000 for the tax year, but lives in a nursing home and receives Medicaid benefits. As a result, they are only able to claim the personal exemption of $4,400, which can only be claimed on their federal tax return. However, according to the Colorado Department of Revenue, they may be eligible to claim up to $13,840 in state-only deductions, which are in addition to their $4,400 federal exemption.
What are the Key Differences Between Colorado and Federal Deductions?
While the basic premise of standard and extra standard deductions remains the same between Colorado and the federal government, there are distinct variations. Colorado allows its residents to claim a state standard deduction that reduces their taxable income by up to $12,000, as long as they meet certain requirements. This makes sense when compared to the federal standard deduction of $24,800 for joint filers in the 2022 tax year.
Combining the Standard Deduction with State Exemptions in Colorado
To determine the full deduction amount, Colorado residents need to add the amount of state exemptions claimed. State exemptions can include home and farm tax credits available in the state of Colorado.
To view the Colorado State Exemptions page, you can visit Colorado Department of Revenue.
Getting Tax Ready and Completion of Forms
Taxpayers should verify they meet the relevant income tax return instructions before beginning the income tax return process. Colorado residents can check if they are allowed to file an income tax return under the new rules by searching income tax forms and instructions at Colorado Department of Revenue. If they meet eligibility requirements for certain credit benefits, a tax professional or accountant certified with the Attorney General’s office can help you get the most out of what is available in the Colorado income tax system.
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