In this video I discuss why social security is taxable and how to reduce the taxes on your benefits.
A portion of your Social Security benefits is taxed as income if your income is above a base
amount based on your filing status. The formula is confusing, and I won’t bore you with it.
Suffice it to say it is a good thing we have computers to calculate it.
If you were taxed on part of your benefits in 2018 or expect to be in 2020, here are some tips:
• Reduce your income by selling your stock market losers. If you sold stocks at a gain,
consider selling other stocks with current unbooked losses. You can always buy back the
stock after 30 days (to avoid the wash sale rules) or buy a different stock in the same
industry now.
• Use taxable investments (non-tax deferred investments) to pay living expenses first. CDs
and money market accounts produce taxable income that increases your income and the
tax on your benefits.
• Defer taxable income to next year. Don’t buy mutual funds right before their dividend
date. Sell assets using an installment sale.
• Consider using a Section 1031 exchange to defer taxes if you are selling real estate.
• If you are considering buying business assets soon, do so before year-end to lower your
income.
• Hire a tax professional to help you with tax planning. The tax code is very complicated
and mind-boggling. This is definitely not a DIY project.