Is Social Security Taxable? Yes, Especially For Widows!

The new tax bill, TCJA, is a HUGE opportunity for married couples to start planning, especially if you’re over 65.

In this episode I discuss how using your increased in Standard Deductions and paying just a bit more tax today can save you HUGE taxes in the future.

Remember, a single taxpayer, i.e. a widow, only has half the Standard Deduction as a married couple. This may not seem a big deal, but it is. The single taxpayer will now be faced with higher taxable income, at a higher tax rate, as well as higher taxation on Social Security, PLUS, potential for huge premium increases on Medicare B and D.

Don’t let this be you. Start slowly moving money over to a Roth IRA, at the minimum up to the maximum of your current tax bracket.

Married with taxable income of $50k means you have $27k before you hit the next bracket of 22%. Pay 12% tax on that $27k today to save huge amounts in the future.

Song of the day is Jake Hamilton and the Sounds – Wade In The Water

Social Security taxation is one of my all-time pet peeves. Primarily this annoys me because by the time the taxes are felt, it’s too late for the taxpayer to do anything about it.

At that point, it’s just a matter of hoping they have enough resources to pay the tax-man and live comfortably.

Tax-Exempt Interest Affects Social Security Taxation

In the video below, I show you an article from Money magazine where in passing a tax pro mentioned how tax-exempt benefits are taxed when it comes to your Social Security.

Unfortunately, this mention was made in passing and I imagine most people would overlook it.

He said that tax-exempt interest is counted in your combined income to determine the amount of taxes you pay on Social Security.

Don’t Overlook This!

But the writer of the article completely failed to discuss in any further detail, as is typical with business writers. They seem to over-look what should be obvious and thus fail to ask the fundamental question “You mean to tell me my tax-exempt interest can make my Social Security subject to taxation?”

Doesn’t that seem odd? That tax-exempt interest is part of the calculation for determining taxes on Social Security?

When Tax-Exempt Is NOT Tax-Exempt

Of course it does! Tax-exempt is “Tax Exempt”, after all. But it’s not!

Why the financial media and other financial professionals don’t understand this boggles my mind.

But it gets worse!

Married or Single Is a BIG DEAL

How Social Security is taxed is also contingent on if you’re married or single.

A single person with $34k of Social Security benefits and $20k of other income, pays $1616 in Federal Income tax.

A married couple with $40k of Social Security and $20k of other income pays NOTHING in Federal Income tax. Yes, you heard that correct – NOTHING!

How Single Taxpayer Pays More in Tax on LESS Income

The single person had gross income of $54k and paid nearly $2k in taxes.

The married couple had gross income of $60 and paid nothing.

In fact for the married couple to pay the same amount of tax as that single person they’d need a whole lot more gross income.

Watch my video on this exact topic.

Don’t Wait To Plan!

But here’s the problem; What are YOU doing about future taxes, now? Is your tax software helping you understand the tax trap that awaits? Your financial advisor? Your accountant?

I doubt it. What most tax planning does is account for where you are today, without giving much a thought to what your circumstances will be in the future.

Then, it’s too late. When you’re an 80-year-old widow with a tax bill of $10k there isn’t much you can do. You pay the tax man, or they come after you.

So, plan now!


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