When you step into the next golden phase of your life that of retirement, social security benefits can be well utilized to the fullest. The point is as when you tap into the benefits, your retirement income will get affected by the additional taxes, but it all depends on the state laws, additional income if any, capital gains and job earnings. Below are some of the key takeaways when it comes to senior tax breaks for retirees for social security.
Paying taxes on social security
In case you live just on your social security benefits, there might not be any taxes imposed. In case you have any additional income such as IRA, 401(k), pension and earnings from the business, federal taxes will be applicable. You need to understand and analyze your provisional income to see how much tax is applicable. Ideally if your total income is anything between $25000 to $34000 and you are a single tax filer, 50% tax will be imposed on the total social security income.
State tax and social security
Few tax-friendly states work for the benefit of the retiree by offering exemptions of taxes on social security. States like Minnesota, North Dakota and West Virginia offer a very low exemption to low- and middle-income retirees. States such as Colorado, Kansas, Missouri, Montana, Utah, and New Mexico are great to retire as you can get a complete exemption of paying taxes on social security benefits.
Filing federal tax and social security
In case you are filing for federal tax and your total income rounds up to more than $25000 to $34000, you may have to pay out up to 50% on your social security benefits. There could be also a possibility of 84% of tax on social security benefits
Keeping tax low
Some states do claim for social security benefits before turning 65 years and that can welcome some unwanted tax. In this case, one needs to start tapping on to the benefits after retiring to keep the tax rates as low as possible. Also in case you have already received the social security benefits and end up taking a job a few months later, try not to claim the benefits and keep it post retirement.
Postponing your retirement
When it comes to social security benefits, you might want to delay your retirement time to best utilize other retirement assets. To keep the impact of tax implication low, you might consider taking up part-time jobs and claiming later for social security benefits.
Reduce and avoid tax on social security benefits
As a retiree or a senior, you can manage tax breaks well by staying below the taxable thresholds, managing other retirement income, taking IRA withdrawals before claiming for social security benefits, save in in ROTH IRA, considering moving to other tax-friendly states and setting up state tax withholdings.
Must avoid municipal bonds
Interests earned on these bonds are ideally not taxable. But the interest earned determines how much tax needs to be payed on social security benefits.
It’s important to be aware of these senior tax breaks for retirees so that every benefit is utilized.
