Are your social security payments taxable? They may be. The IRS’s rules for taxing Social Security benefits could require some studying on your part.
If you’ve received Social Security benefits for more than a year, you probably already know the answer to this question. But if you started receiving those government-issued checks or direct deposits in the last year, now’s the time to find out.
As you know, many IRS rules are absolutely cut-and-dried. But there are many others with exceptions, and this is one of them. You have to consider numerous factors in determining whether your Social Security benefits are taxable.
In most cases, the maximum taxable portion of your Social Security benefit distributions is 50 percent. You could, though, pay tax on up to 85 percent in one of two scenarios:
- If you add one half of your benefits to the total of all your other income and come up with more than $34,000 or $44,000 if married filing jointly.
- You file married filing separately and you lived with your spouse for any length of time during the year.
Now comes the tricky part: calculating exactly what percentage of your Social Security benefits is taxable. Your 1040 or 1040A instructions should contain a very complex worksheet that can help you. But this, like any other element of your income tax return, must be absolutely correct, or you’ll be receiving post-filing correspondence from the IRS.
It’s no small task to do the calculations and reporting required to find out what–if any–percentage of your Social Security benefits are taxable.
There are many exceptions to the rules and formulas we’ve discussed here. And you must fully understand them to come up with the right answer. This will involve poring over IRS instructions that may be difficult for you to decipher. You can find more information in IRS Publication 915.
If you know that you’ll start receiving Social Security benefits in 2018, it would be a good idea to start thinking soon about how this will affect your overall income tax obligation. We always advise year-round tax planning. Such an approach not only helps you avoid unpleasant surprises at filing time – it may also help you take action before the end of the year to minimize what you owe. We’d be happy to meet with you and get you started on better, smarter preparation for taxes.
Call us today.