The Mistake: Not Planning For Taxes on Social Security Benefits
If you fail to take taxes under consideration when preparing for retirement, you could be in a world of trouble by the time you claim your first check. Those who earn wages or dividends over certain thresholds will be subject to federal income taxes on their Social Security, and these taxes could cut your benefits by as much as 85%.
You should always take a close look at your combined income, which is made up of nontaxable interests, adjusted gross income and half of your Social Security benefits.
Let’s look at single individuals first. Those who have a combined income between $25,000 and $34,000 will likely see up to half of their benefits taxed. Above $34,000 will result in an 85% tax.
The same principles apply for joint filers. Understandably, under these circumstances, the thresholds change. Between $32,000 and $44,000, couples will be subject to up to 50% tax, while anything over $44,000 will see an 85% tax.
Solution: Proactively Plan For Taxes
There’s no point in paying the IRS more than you should. That’s why when it comes to taxes paying extra attention will benefit you more than you’d think, even if all the research taxes time. It’s 100% worth it!
Maybe you’re planning on donating money to charity. A commendable gesture, just make sure you’re smart about it. Instead of using random funds, you should consider a qualified charitable distribution to satisfy your required minimum distribution from an IRA. Why? Because it won’t add to your taxable income.
Just, whatever you do, make sure to follow up any plans regarding money with questions about how they might or might not affect your taxes.
