Tax Strategies & Credits

Easy Steps to Minimize the Tax on Your Social Security Benefits

by
Bob Mason
on
7/1/2019
Easy Steps to Minimize the Tax on Your Social Security Benefits

There are numerous reasons why an individual may receive Social Security benefits: you may be getting them because you have reached the age of eligibility, because you have retired, or because of a disability. Regardless of what your circumstance is, you need to understand that these benefits are not necessarily tax free—in fact, in most cases they are taxable, and the amount that they are taxed depends on several variables as outlined below. 

The first thing you need to know is that Social Security benefits are not the same as Supplemental Security Income benefits. Those benefits are never taxable, so if you are receiving those payments, remember that the rules provided here do not apply. Similarly, if you do receive Social Security benefits and they are the only income that you receive, it is highly unlikely that they will be taxable.

However, if you have other sources of income, and they are significant, then there’s a good chance that you are facing a tax liability on up to 85% of your benefits. The same is true if you file a separate tax return from a spouse with whom you live for any portion of the tax year. In order to discourage married taxpayers from trying to cut their taxable income by filing separately, the government has created an automatic 85% tax liability on Social Security benefits for filing married by separate.

To facilitate the ability to calculate what percentage of Social Security benefits are taxable, the government has provided the following threshold amounts:

  • For married couples filing separately, the threshold is $0
  • For married couples filing jointly, the threshold is $32,000
  • For qualifying widows or widowers with dependent children, heads of household, single individuals, and married individuals who file separately and who didn’t live with their spouse at any point during the year, the threshold is $25,000

To figure out whether you meet or exceed the threshold, add half of your total Social Security benefit to all of your other income. This should include tax-exempt interest and other amounts that are excluded from income. Your total should be compared to the thresholds above. Whatever exceeds the threshold may be taxable.

What can you do to minimize the amount that your Social Security benefits are taxed?

Anything you can do to defer or lower the amount of your additional income will help minimize your tax liability. This may mean taking IRA (Individual Retirement Account) distributions, though the minimum distribution rules and other requirements pertinent to your specific accounts may prevent you from doing so.

The best way to determine whether there are tax-reduction steps that you can take is to speak to a five-star reviewed tax professional about your particular scenario. Doing so may provide you with smart and simple ways to hold on to more of your benefits.

Bob Mason, CPA writes for CountingWorks, an accounting news and advice website. Reach his office at [email protected]

share this post
Bob Mason

Bob Mason

Bob Mason is the founder of Coast Financial Services Inc. servicing both the Santa Cruz, and San Jose areas. Bob Mason is a skilled financial professional who is fully equipped to assist any of your accounting needs. Founding his firm in Santa Cruz, Bob understands the importance of small businesses and how they form the backbone of the area. Coast Financial Services, Inc. has been dedicated to the growth and profitability of businesses in Santa Cruz for 17 years. To learn more about Bob Mason and the rest of his team, visit their website.

COAST FINANCIAL SERVICES, INC.
1 review

California

In the face of economic uncertainty, TaxBuzz is the industry's most up-to-date tax information.

Join 60,000 who get our weekly newsletter. No spam.

We know tax and accounting issues are complicated.

Do you have additional questions on this topic for this author?

Related Posts

Latest Posts