Episode 32: Can I Reduce Taxes On My Social Security?
Have your question answered on the Money Wisdom Question Series!
Thank you for joining us for Episode 32 of our Money Wisdom Question Series, where we answer common financial and retirement investment questions. Today’s question is, “Can I reduce taxes on my Social Security?”
Your Social Security Taxes Depends on a Formula
The simple answer is yes, you can reduce taxes on your Social Security. However, you might not want to because of what it entails. The amount of taxes that you pay on your Social Security is dependent on a formula that takes into account your other income. This could be investment or earned income or K-1 income from a partnership that you’re a part of. Any other type of income is going to go into this formula that says whether you can increase or decrease taxes on your Social Security.
It Is All Dependent on Your Other Income
Now, here’s the trick. You can get zero taxes on your Social Security if you don’t have other income or if you have a small amount of other income. Some people say, “Well, I want $10,000 a month to live on.” You can still reduce your, quote, “income”. How can you do that? Let’s pretend I had $500,000 in the bank and I’ve already paid taxes on that money. If I live off that cash flow, if I start drawing down $10,000 a month, that does not show up as income on my tax return. So, if I’m doing that, I have no other income.
Let’s say I leave my retirement money alone completely. Maybe I’m under 72 and I don’t have to take any retirement money out. I could actually use bank money that I’ve already paid taxes on and take my Social Security taxes and take them to zero. I get to keep my entire Social Security check.
The Bottom Line
I know I got a little technical there, but the bottom line is you can reduce taxes on your Social Security income, but you have to manipulate, for lack of a better word, your overall taxable income.
The formula that decides how much money you’ll pay in taxes on Social Security is part of your tax return. They take something called provisional income and that’s what you want to reduce. It gets a little technical, but it’s simpler than you think.
I want to prompt your mind to be thinking about that because you should be dealing with a financial planner that is helping you reduce taxes in all different areas.
Thanks for joining me and I hope you found this information helpful!
P.S. If you enjoyed this topic and want to learn more, download our offer, “Are You Paying Too Much in Taxes in Retirement?”
P.P.S. Feel free to submit questions here for a chance to have them answered!
Information presented in our podcasts is considered current as of the created date. Over time, some information presented may become stale. We recommend you consult with your Financial Professional before making any changes based on information contained here.
Johnson Brunetti is a marketing name for the businesses of JB Capital and JN Financial.
Investment Advisory Services offered through JB Capital, LLC. Insurance Products offered through JN Financial, LLC.
The guarantees provided by any type of insurance contract are based on the claims-paying ability of the insurance company.
Related Resources
-
Staying Ahead of the Tax Curve
Retirement doesn’t mean you stop paying taxes – but there are ways to minimize the bite in the long run. With thoughtful, proactive tax planning, you can stay ahead of the curve and keep more of w… -
How Much Will I Get from Social Security?
When planning for retirement income, it’s important to have a clear idea of how much you can expect to receive. However, estimating your future Social Security benefit can be complicated. Your … -
What’s the Best Age to Start Taking RMDs?
Is it better to take your required minimum distribution (RMD) sooner rather than later? While the IRS determines when you must begin taking RMDs, you may benefit from taking them earlier. An RM… -
Should I Downsize My Home for Retirement?
Equity is on the minds of many pre-retirees and retirees today, more specifically: Should I downsize my home in retirement? And if so, when is the right time to do it? In this week’s Money Wisd… -
How Can You Protect Your Retirement Assets for Your Family?
When you’re focused on planning for retirement, it’s easy to overlook how you can protect your assets for both yourself and your family. While there’s no one-size-fits-all approach, your first ste… -
What Level of Risk Is Right for Your Retirement Plan?
In this week’s Money Wisdom Question Series, Ian Fergusson, RICP® addresses a fundamental concern for anyone approaching or in retirement: What level of risk is appropriate for my retirement plan?… -
What Estate Planning Steps Should I Take?
With retirement on the horizon, you may be wondering what steps you should be taking from an estate planning standpoint. At its core, there are three key estate planning considerations to keep in … -
Podcast 407: Is My Social Security Income Taxable?
Prefer to watch? Click here to watch and listen on YouTube. A common misconception about Social Security is that whether your benefits are taxed depends on the state you live in. While state ta… -
How Can I Protect My Retirement Savings from Market Volatility?
We’ve been receiving a lot of questions lately about how to best protect your retirement savings against stock market volatility. It’s easy to let recent fluctuations in the market shake your conf… -
Avoiding the Retirement Tax Trap
Once you retire, understanding your tax implications becomes even more crucial. After all, taxes don’t disappear in retirement. In fact, as you begin withdrawing from your retirement savings, you …
