Social Security benefits are often, but not always, subject to tax at the federal level. However, whether your benefits are subject to tax is largely dependent upon your income. An Arkansas wealth manager can help you reduce your tax burden while planning alternate strategies to ensure you have the funds needed for a happy, healthy retirement.
Finding Out Whether You Owe Social Security Taxes
Social Security income is taxable. While not everyone owes money on their benefits, many people have to give the Internal Revenue Service (IRS) a portion of the proceeds. However, your obligation to the IRS is largely dependent on your current income and filing status.
The IRS advises Social Security recipients to total their benefits for a single tax year, divide by half, add that half to the sum of their other retirement income, and then apply the following formulas:
- If you are single and your total income is more than $25,000, you may owe tax on a portion of your Social Security benefits.
- If you are married and filing jointly, you need to add half your Social Security income with half your spouse’s Social Security income. Then, total your other sources of income. If you are making more than $32,000 per year between your shares of Social Security and other sources of income, you may owe tax.
Some people with large post-retirement incomes or special tax filing statuses may be taxed on anywhere between 50 and 85 percent of their Social Security benefits.
How a Wealth Adviser Can Help
Few people manage to retire solely on Social Security benefits. However, Social Security is often an important part of a retiree's financial plan. Your Social Security tax obligation, if any, may be reduced through careful planning. If you and your spouse retire at different ages, you may be able to minimize your tax obligation for several years. Furthermore, if you have a dependent, any payments you make to them could be deducted from your taxable Social Security income.
One way or another, Social Security should not be your lone fallback. A well-rounded, comprehensive retirement plan should include not just Social Security investments but a 401(k) or IRA, other investments, and savings. Quraishi Law & Wealth can help you identify the best solutions for your retirement, whether you are already there or are simply planning for a prosperous future.
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