Reduce the Taxes on Your Social Security Benefits

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Reduce-federal-taxesA 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.