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
2012 or expect to be in 2013, 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.