Social Security Retirement

Up to 85% of your retirement benefits from Social Security may be taxable. Here's how to know how much is taxable and what you can do to reduce or eliminate the tax.

Of all the financial issues surrounding being a senior, one that tops the list in terms of anger is the fact that under the circumstances, the benefits of retirement security is taxable. My experience shows that some older people are completely unaware of this fact. I also had to sit and listen to the rantings of those who are aware. It goes something like this: "I have already paid tax on gains in my life. Social security gained from my income each paycheck was a tax. This looks like a tax on a tax. "And so on ...

After allowing the person blow off steam, my response is usually: "Hey, do not shoot the messenger, I'm here to see if any of your Social Security benefits are taxed, if so, how much and what we can do to reduce or eliminate this tax. "Allow me to guide you through the first part of our conversation.

Whether or not you are taxed depends on:

1. The amount of your income.
2. Whether or not you have income from sources other than social security.

The amount of your tax depends on:

1. Your filing status: single or married.
2. The amount of your income.

The tax on retirement benefits of Social Security has been put into force in 1983. Fee has been applied to a maximum of 50% of benefits. In 1993 this was increased to 85%. Here's how the calculation goes ...

The first step is to calculate the "provisional income". Then please return last year.

1. Subtract your taxable SS benefits (line 20b) Set your gross income (line 37).
2. Add half of your SS benefits total (line 20a).
3. Add any tax-exempt interest (line 8b).
4. The result is your "provisional income".

Once you know this number, you can apply the rules to determine how much of your SS is taxed. Again, it depends if you are married or single and your income.

Let us begin with a married couple filing jointly. Here's the math ...

1. If your provisional income is below $ 32,000, you do not have a problem.
2. For provisional income over $ 32,000:
a. Take the provisional income between $ 32,000 and $ 44,000 and divide by two.
b. If your income is above $ 44,000 interim, take the provisional total income, subtract and multiply $ 44,000 by 0.85.
C. Add 2a and 2b.
d. Multiply your total SS benefits (line 20a) of 0.85.
e. The least of your results on 2c and 2e above is the amount of your benefits taxable SS.

Now look at the calculation for a single person ...

1. If your provisional income below $ 25,000, none of your SS benefits are taxable.
2. For incomes over $ 25,000 provisional
a. Take the provisional income between $ 34,000 and $ 25,000 and divide by two.
b. If your income is above $ 34,000 interim, subtract $ 34,000 of your total provisional income and multiply by 0.85.
C. Add 2a and 2b.
d. Multiply your total SS benefits (line 20) of 0.85.
e. The least of your results on 2c and 2d above is the amount of your benefits taxable SS.

Now that you know whether or not any of your Social Security benefits are taxable, and if so how, the next step is to take a look at how you can reduce or eliminate this tax. In general, there are three categories of solutions:

1. Reduce your interest income. The most common is the interest on the CD.
2. Reduce your income from dividends.
3. Reduce your income tax-exempt interest.

Note: The calculations above use a very simplified approach. Your situation may have been others.