Social Security Recipients May Be Eligible For Five Tax Breaks That They May Not Be Aware Of
Social Security Recipients May Be Eligible For Five Tax Breaks That They May Not Be Aware Of: Simply because you began receiving Social Security retirement benefits does not mean that income taxes end. If you receive certain kinds of taxable income in addition to Social Security payments, you may still have to pay federal income taxes on your benefits.
According to the Social Security Administration, taxable income for Social Security recipients includes wages, self-employment income, interest, and dividends. The good news is that, depending on your income, the IRS only taxes individuals on either 50% or 85% of your Social Security benefits.
Visit the SSA’s “Income Taxes And Your Social Security Benefit” website to find out more about the numerous elements that determine Social Security income taxes, including cumulative thresholds for income and what you might be required to pay.
There are some tax advantages you might not be aware of that can lessen your tax burden if you must pay income taxes as a Social Security recipient. Check out five of them right now.
Retirement Account Contributions That Are Tax Deductible
According to the AARP, if you are still paying contributions to an IRA, you may be able to totally or partially deduct these payments from your adjusted gross income (IGA).
Pre-tax contributions to an IRA for Social Security claimants are now allowed up to $7,500 in 2023, up from $7,000 in the previous year. Health savings account (HSA) contributions may also be tax deductible, lowering your taxable income.
Discounts For Businesses And Hobbies
If your income exceeds a specific threshold, you may be required to pay self-employment income tax if you founded a business or engaged in an income-producing hobby in retirement, such as crafting or carpentry.
However, according to a blog on the website of The Arbor Company, you can deduct part of the costs of your business and may even be eligible for additional deductions if you are over 65. All company expenses, such as advertising, supplies, home office charges, consultant fees, and business education costs, are deductible.
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Minimum Distribution Donations Required
RMDs are distributions from retirement accounts that you are required to make after a certain age. Usually, they’re created near the end of the calendar year. If you are required to take RMDs due to your age, you can avoid having the proceeds included in your taxable income by making a charitable donation by December 31 of each year.
Tim Steffen, director of advanced planning for financial management company Baird, told the AARP that this is an excellent method for someone who is compelled to withdraw funds from an IRA that they do not need.
Just keep in mind that you must transfer the RMD payment from a regular IRA or 401(k) directly from your account to the charity.
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Tax Credit For The Elderly Or Disabled
According to the IRS, tax credits for the elderly or the disabled allow you to pay less federal income tax overall. You must be 65 years of age or older to qualify for the credit, or you must also meet other requirements like retirement or total or permanent disability.
Additionally, you can be eligible if your AGI or the sum of your nontaxable Social Security, pension, annuity, or disability income is below a particular threshold. The credit amount itself varies from $3,750 to $7,500.
Use Gains To Offset Losses
Although no one enjoys losing money on the stock market, there are situations when you can use losses to reduce your tax liability. According to the AARP, if you sell losing investments, you can deduct up to $3,000 in ordinary income and utilize the losses to balance income from capital gains. Tax-loss harvesting is another name for this tactic.
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