Best Ways to Avoid Social Security Taxes

social security

Best Ways to Avoid Social Security Taxes

For anyone getting closer to retirement the thought of collecting Social Security benefits has likely come to mind. You’ve worked a lifetime and now it’s time to kick off your shoes and reap the rewards of all that hard work. But did you know those benefits are not necessarily free? Some people do have to pay taxes on their Social Security benefits. However, if you plan and prepare properly then you can take steps to minimize the tax hit and keep your social security taxes as low as possible.

How Much Do You Have to Pay?

First off, your Social Security benefits might be tax-free. It will depend on your so-called provisional income. You can determine this number by taking your adjusted gross income(AGI), not including SS benefits. If your provisional income is less than $32,000 and you’re a joint filer, or $25,000 for a single-filer, you don’t have to pay any taxes on your SS benefits. If your provisional income is between $25-$34K or $32-44k, then you might pay taxes on as much as half of your SS benefits. If you make more than $34k or $44k, respectively, then as much as 85 percent of your SS benefits could be subject to taxes. You can determine your taxable SS benefits by clicking here.

Tips to Keep Your Social Security Taxes Down

So the best way to keep the taxable amount on your Social Security benefits as low as possible is by keeping your taxable income as low as possible. Here are some steps you can take to do that.

Live in a Tax-Friendly State – if you want to keep your taxable income lower, try moving to a more tax-friendly state. There are 13 states that currently tax Social Security benefits. If you move to one of the other 37 states you automatically save money.

Donate IRA Distribution to Charity – if you’re 70½ or older, you can donate as much as $100,000 each year tax-free to charity from your traditional IRA. These gifts can count as your required minimum distribution, but they do not count against your AGI.

Tax-Free Roth Withdraws – another source of income that does not count against your AGI are withdrawals from a Roth IRA. You can use the money from these withdrawals to help pay for living expenses, but they won’t count against your provisional income. It might also be a good idea to roll over your traditional IRA into a Roth IRA before you start receiving Social Security benefits.

Qualified Longevity Annuity Contract – a QLAC allows you to invest as much as $130,000 from your IRA into a special kind of deferred-income annuity. This money is not counted against you when you calculate your required minimum distribution. That helps lower your taxable income for the year.

Careful With Your Investment Income – keep a close eye on your investment income. If you earn a significant amount of capital gains, then your AGI could increase enough to put you in a higher bracket for Social Security taxes.


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Alan Olsen, CPA

Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of  GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.

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