What part of Social Security is taxable?

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax Tips Social Security benefits: A tale of two tax tiers After paying taxes on earnings during your entire work career, you may finally be entitled to receive Social Security retirement benefits. But be aware that those benefits could come at a tax price. Depending on a complex calculation based on two tiers, you might have to pay federal income tax on a portion of the benefits. The tax liability for Social Security benefits depends on a two-tier system that takes your "provisional income" (PI) into account. PI is defined as the total of three amounts: (1) your adjusted gross income (AGI) for other tax purposes, (2) tax-exempt interest income, like municipal bond interest, and (3) 50 percent of the Social Security benefits received. For example, if you have an AGI of $100,000, municipal bond income of $5,000, and Social Security benefits of $20,000, your PI is $115,000 ($100,000 plus $5,000 plus $10,000). The calculation for taxing Social Security benefits under the two tiers is complex. Without going into all the details, here's what you need to know. If your PI falls between the lower threshold of $32,000 and upper threshold of $44,000 for joint filers (between $25,000 and $34,000 for single filers), up to 50 percent of your benefits are taxable. If your PI exceeds the upper threshold, up to 85 percent of your benefits are taxable. Thus, if you reach the second tier, you're taxed on a larger share of the benefits. In addition, the thresholds for the two tiers aren't indexed for inflation, so the tax will continue to kick in at relatively modest levels. How can you reduce your tax liability for Social Security benefits? Keep an eye on the PI components. For instance, you might lower your AGI by postponing capital gains from securities sales to next year or taking losses this year to offset gains. It's wise to consider all the relevant factors before you make any moves. Call if you have questions. Please call us if you have any questions. 2016 Tax Extension Deadlines are approaching. Go to www.tenfortyplus.com and complete your online organizer (under forms and documents). Make your appointment using our online appointment system. Call 281-397-7777 and get a user id with password set up so you can send us all your information through our online secure portal and do your taxes from the comfort of your home or office or come see us at our office. 1040 + Quality Tax Preparation & Financial Services Joseph C Becker EA www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale or purchase of a business property in excess of $5,000. • Sale or purchase of a residence or other real estate.