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Will You Have to Pay Taxes on Your Social Security Benefits?

Thanks to the steady march of inflation, more and more retirees are forced to pay income taxes on their Social Security benefits.

Why Social Security is taxable

Once upon a time, Social Security benefits were completely tax-free. Then, in 1983, President Reagan signed an amendment making up to 50% of Social Security benefits taxable. In 1993, President Clinton signed a bill that (among other things) made up to 85% of "higher-income" Social Security recipients' benefits subject to taxation. Unfortunately, that bill failed to provide a method for raising the tax's income thresholds in response to inflation, so what was once a "higher-income" threshold now includes a much wider range of Social Security beneficiaries.

How to find out if your benefits will be taxed

The first step in determining whether your benefits will be taxable is to compare your income to the base threshold. If you're already receiving Social Security benefits, then your annual Form SSA-1099 will tell you how much you received in benefits during the last year. If you're not yet receiving benefits, you can look at your Social Security statement and use the estimated benefit from that form. Just take the monthly estimated benefit number and multiply it by 12 to see how much Social Security money you'll be getting per year.

Next, divide your annual Social Security benefit by two. Add this number to any other taxable income you received during the year, plus tax-exempt interest earnings. The total is what's known as your "combined income," and if it exceeds a certain threshold based on your filing status, then your benefits will be at least partially taxable:

Filing statusUp to 50% of Benefit Taxable if Combined Income Exceeds...Up to 85% of Benefit Taxable if Combined Income Exceeds...
Married filing jointly $32,000 $44,000
Married filing separately (and you lived with your spouse throughout the year) $0 $0
Other $25,000 $34,000

Social Security card and calculator


Note that "up to" that percentage of your Social Security benefit will be taxable if your combined income exceeds the threshold. You may be taxed on a lower percentage of your benefit depending on the makeup of your income. To figure out how much of your benefit may be subject to taxation, check out IRS Publication 915 or simply plug some numbers into our handy calculator.

How to minimize your tax bill

For most retirees, it's distributions from traditional IRAs and 401(k) accounts that push their combined income over the threshold and cause their Social Security to be taxed. Unfortunately, you don't have complete control over how much money you take out of these accounts: The IRS requires you to take mandatory minimum distributions once you hit age 70-1/2. Your only option with traditional retirement accounts is to limit yourself to the required minimum distribution (assuming that's enough for you to live on) and hope that that income won't be enough to make your benefits taxable.

If you're fortunate enough to have a Roth, you're in a much better position to control your Social Security taxes. Roth distributions are not taxable income, so they don't count toward the income threshold that determines whether your benefits are taxable. And there's no required minimum distribution from Roth accounts, so you can take distributions when it makes the most sense for you and leave the rest to keep growing for as long as possible.

Planning for a low-tax retirement

Assuming you're still at least a few years from retirement, you can take steps now to minimize taxes on your Social Security benefits. If you don't already have a Roth account, now is a good time to set one up and fund it to the max. With that account plus your traditional retirement accounts, you'll be able to tinker with your distributions in such a way as to minimize your income for purposes of Social Security taxation thresholds. And if you're already retired, consult with a tax professional for assistance in lowering your taxable income. Tax planning can do a surprising amount of good, even if you're stuck with fixed, taxable sources of income.





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34 things you need to know about the incoming tax law

It's official. Congress has ushered through the first major tax overhaul since Ronald Reagan was president.

The measure, which President Trump signed into law on Friday, is about to shake up life for millions of Americans. It will redistribute the country's wealth. It could sway decisions about whether to buy a home, or where to send kids to school. It could even affect when unhappy couples decide to get a divorce.

As the bill becomes law, here are 34 things you need to know.

1. This is the first significant reform of the U.S. tax code since 1986.

Reagan signed major legislation for corporations and individuals in 1986. Since then, serious tax reform has eluded Republicans, though they repeatedly called for it as the tax code became longer and more arcane.

2. Changes have been made to both individual and corporate tax rates.

Individual provisions in the new legislation technically expire by the end of 2025, though some people expect that a future Congress won't actually let them lapse. Most of the corporate provisions are permanent.

3. Tax reform will increase deficits by $1.46 trillion over the next decade.

That's the net number that's been crunched by the nonpartisan Joint Committee on Taxation. The future law's contribution to the debt will likely be even higher if individual tax cuts are re-upped in eight years.

4. There are still seven tax brackets for individuals, but the rates have changed.

Americans will continue to be placed in one of seven tax brackets based on their income. But the rates for some of these brackets have been lowered. The new rates are: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Find out where you fit here.

5. The standard deduction has essentially been doubled.

Republicans want fewer people to itemize their taxes. To achieve this, they've nearly doubled the standard deduction. For single filers, the standard deduction has increased from $6,350 to $12,000; for married couples filing jointly, it's increased from $12,700 to $24,000.

6. The personal exemption is gone.

Previously, you could claim a $4,050 personal exemption for yourself, your spouse and each of your dependents, which lowered your taxable income. No longer. For some families, the elimination of the personal exemption will reduce or negate the tax relief they get from other parts of the reform package.

7. The state and local tax deduction now has a cap.

The state and local tax deduction, or SALT, remains in place for those who itemize their taxes -- but now there's a $10,000 cap. Previously, filers could deduct an unlimited amount for state and local property taxes, plus income or sales taxes.

8. The child tax credit has been expanded.

The child tax credit has doubled to $2,000 for children under 17. It's also now available, in full, to more people. The entire credit can be claimed by single parents who make up to $200,000, and married couples who make up to $400,000.

9. There's a new tax credit for non-child dependents, like elderly parents.

Taxpayers may now claim a $500 temporary credit for non-child dependents. This can apply to a number of people adults support, such as children over age 17, elderly parents or adult children with a disability.

10. Fewer people will have to deal with the alternative minimum tax.

The alternative minimum tax, a parallel tax system that ensures people who receive a lot of tax breaks still pay some federal income taxes, remains in place for individuals. But fewer people will have to worry about calculating their tax liability under the AMT moving forward. The exemption has been raised to $70,300 for singles, and to $109,400 for married couples.

11. And the mortgage interest deduction has been lowered.

Current homeowners are in the clear. But from now on, anyone buying a new home will only be able to deduct the first $750,000 of their mortgage debt. That's down from $1 million. This is likely to affect people looking for homes in more expensive coastal regions.

12. None of this will affect your 2017 taxes.

Americans won't need to worry about these changes when they start filing their 2017 tax returns in about a month. The new laws will first be applied to 2018 taxes.

13. By the way, you can still deduct student loan interest.

The deduction for student loan interest, which is up to $2,500 per year, is safe.

14. You can still deduct medical expenses.

The deduction for medical expenses wasn't cut. In fact, it's been expanded for two years. In that time, filers can deduct medical expenses that add up to more than 7.5% of adjusted gross income. In the past, the threshold for most Americans was 10% of adjusted gross income.

15. If you're a teacher, you can still deduct classroom supplies.

The deduction for teachers who spend their own money on school supplies was left alone. Educators can continue to deduct up to $250 to offset what they spend on classroom materials.

16. The electric car tax credit lives on.

Drivers of plug-in electric vehicles can still claim a credit of up to $7,500. Just as before, the full amount is good only on the first 200,000 electric cars sold by each automaker. GM, Nissan and Tesla are expected to reach that number some time next year.

17. Home sellers who turn a profit keep their tax break.

Homeowners who sell their house for a gain will still be able to exclude up to $500,000 (or $250,000 for single filers) from capital gains, so long as they're selling their primary home and have lived there for two of the past five years.

18. 529 savings accounts can be used in new ways.

In the past, funds invested in 529 savings accounts wasn't taxed -- but it could only be used for college expenses. Now, up to $10,000 can be distributed annually to cover the cost of sending a child to a "public, private or religious elementary or secondary school." This change is a win for Education Secretary Betsy DeVos.

19. And tuition waivers for grad students remain tax-free.

Graduate students still won't have to pay income taxes on the tuition waiver they get from their schools. Such waivers are typically awarded to teaching and research assistants.

20. But say goodbye to the tax deduction for alimony payments.

Alimony payments, which are codified in divorce agreements and go to the ex-spouse who earns less money, are no longer deductible for the person who writes the checks. This provision will apply to couples who sign divorce or separation paperwork after December 31, 2018.

21. The deduction for moving expenses is also gone ...

There may be some exceptions for members of the military. But most people will no longer be able to deduct the cost of their U-Haul when they move for work.

22. As is the tax preparation deduction ...

Before tax reform passed, people could deduct the cost of having their taxes prepared by a professional, or the money they spent on tax prep software. That break has been eliminated.

23. ... The disaster deduction ...

Losses sustained due to a fire, storm, shipwreck or theft that aren't covered by insurance used to be deductible, assuming they exceeded 10% of adjusted gross income. But now through 2025, people can only claim that deduction if they've been affected by an official national disaster. That would make someone whose house was destroyed by a California wildfire potentially eligible for some relief, while disqualifying the victim of a random house fire.

24. ... And the reimbursement for bicycle commuters.

The tax code used to let you to knock off up to $20 from your income per month for the costs of bicycle commuting to work, assuming you weren't enrolled in a commuter benefit program. That's gone.

25. Almost everyone is now exempt from the estate tax.

Before tax reform, few estates were subject to the estate tax, which applies to the transfer of property after someone dies. Now, even fewer people have to deal with it. The amount of money exempt from the tax -- previously set at $5.49 million for individuals, and at $10.98 million for married couples -- has been doubled.

26. Adjustments for inflation will be slower.

The new legislation uses "chained CPI" to measure inflation. It's a slower measure than what was used before. Over time, that will raise more money for the federal government, but deductions, credits and exemptions will be worth less.

27. Oh, and the individual mandate on health insurance has been scrapped.

Republicans failed to repeal Obamacare earlier this year, but they managed to get rid of one of the health law's key provisions with tax reform. The elimination of the individual mandate, which penalizes people who do not have health care, goes into effect in 2019. The Congressional Budget Office has predicted that as a result, 13 million fewer people will have insurance coverage by 2027, and premiums will go up by about 10% most years.

28. You won't be able to file your tax return on a postcard.

Trump said H&R Block would go out of business after tax reform because filing taxes would become so simple. Not quite. While doubling the standard deduction will ease the process for some individuals, there's still a web of deductions and credits to work through. And for small businesses, filing could become even more complicated.

29. The corporate tax rate is coming down.

The corporate tax rate has been cut from 35% to 21% starting next year. The alternative minimum tax for corporations has been thrown out altogether. Earnings are expected to go up as a result.

30. Pass-through entities will also get a break.

The tax burden by owners, partners and shareholders of S-corporations, LLCs and partnerships -- who pay their share of the business' taxes through their individual tax returns -- has been lowered via a 20% deduction. The legislation includes a rule to ensure owners don't game the system, but tax experts remain concerned about abuse of this provision.

31. Not all CEOs think they'll use their savings to create jobs, though.

Just 14% of CEOs surveyed by Yale University said their companies plan to make large, immediate capital investments in the United States following tax reform. Capital investments, like building plants and upgrading equipment, can spur hiring.

32. Plus, the way multinational corporations are taxed is about to change.

The U.S. is switching to a territorial system of taxation, which means companies won't owe federal taxes on income they make offshore. To help the transition, companies will be required to pay a one-time, low tax rate on their existing overseas profits -- 15.5% on cash assets and 8% on non-cash assets, like equipment in which profits were invested.

33. By the way, there's a provision to rein in executive pay at nonprofits.

The legislation includes a new 21% excise tax on nonprofit employers for salaries they pay out above $1 million. That may mean some well-paid executives at nonprofits take a pay cut.

34. Businesses won't be able to write off sexual harassment settlements.

New Jersey Democratic Senator Bob Menendez's amendment born of the #MeToo momentmade it all the way through. Companies can no longer deduct any settlements, payouts or attorney's fees related to sexual harassment if the payments are subject to non-disclosure agreements.


10 Ways to Settle Your IRS Tax Debts For Less Than What You Owe

Do you Find dealing with the IRS frustrating, Intimidating and Time-consuming. You’re not alone.

While taxpayers may always represent themselves in front of the IRS, many turn to professional tax help (specialized IRS tax attorneys, CPAs, and Certified Tax Resolution Specialists) in order to maximize their chances of winning a tax settlement while minimizing their contact with the IRS agents. Owing the Internal Revenue Service (IRS) money is intimidating to most people. The IRS has the power to garnish your wages, seize your assets and place a lien on your property in order to obtain the money that you owe them. However, these actions can be prevented by communicating promptly with the IRS about your situation. The IRS is usually willing to work with taxpayers, and there are several options available so that you may resolve your debt issues.

As a creditor, the Internal Revenue Service carries the weight of the federal government behind it. In addition to having extensive methods to collect on outstanding tax debt, the IRS also can be extremely patient. As long as the IRS knows it is going to get paid someday, it can wait until you are in a better financial position to pay. Of course, the longer you take to pay your tax debt, the more you will owe.

10 Ways to Settle Your IRS Tax Debt


1. Installment Agreement

A monthly payment plan for paying off the IRS. If you think you are a victim of a fraudulent investment scheme (“Ponzi” Scheme), where you have lost all or most of your investment, you may be eligible to take advantage the United States Tax Code (law) to recoup 30% to 40% of your losses. This highly technical and complex process can help you reduce taxes paid in previous years resulting in refund with interest.
2. Partial Payment Installment Agreement

 A fairly new debt management program where you have a long term payment plan to pay off the IRS at a reduced dollar amount.Much like a monthly credit card payment, IRS payment plans allow you to pay off your unpaid back taxes in installments instead of all at once. A well-qualified tax attorneyor Certified Tax Resolution Specialist will negotiate the lowest possible monthly payment for your needs.

3. Offer in Compromise

A program where you can settle your tax debts for less than what you owe. Requires making a lump sum or short term payment plan to pay off the IRS at a reduced dollar amount.If you owe the IRS more than you can afford to pay, this could be the plan for you. Essentially, an Offer in Compromise gives you the opportunity to pay a small amount as a full and final payment. If you qualify for the Offer in Compromise program, you can save thousands of dollars in taxes, penalties and interest.

4. Not currently collectible

A program where the IRS voluntarily agrees not to collect on the tax debt for a year or so. Currently Not Collectible means that a taxpayer has no ability to pay his or her tax debts. The IRS can declare a taxpayer “currently not collectible,” after the IRS receives evidence that a taxpayer has no ability to pay. This is a useful tool because you can file for a collection appeal to stop an IRS levy, lien, seizure or the denial or termination of an installment agreement. The collection appeal gives you the opportunity to explain how you think the situation could be solved without the IRS levy or seizure.

5. Lower Your Debt With Credit Card Debt Settlement

There are two methods of credir card debt consolidation: through a credit card debt settlement company or on your own. Credit card debt settlement companies should be avoided. They collect your payments for months before making a settlement offer – if they make an offer at all. Meanwhile, you continue receiving collection calls and negative payment marks on your credit report. You’ll get better and faster results settling debts on your own.Final credit card debt settlement agreements should be in writing. Either draft an agreement of your own or have your credit card company send you an agreement. Make sure you and someone from your credit card company have both signed the agreement before you send payment.

 6. File Bankruptcy

Income tax debts may be eligible for discharge under Chapter 7 or Chapter 13 of the Bankruptcy Code. Filing for bankruptcy is one of five ways to Tax Debt Relief, but you should consider bankruptcy only if you meet the requirements for discharging your taxes. Chapter 7 provides for full discharge of allowable debts. Chapter 13 provides a payment plan to repay some debts, with the remainder of debts discharged.

 There’s no “secret sauce” in paying off tax debts. These are the only five ways of getting out from under the IRS’ aggressive debt collection tactics. If a tax pro promises you that you can save “pennies on the dollar” through an offer in compromise, that person is probably more interested in selling you something you don’t need instead of focusing on your unique financial situation and determining what the best course of action is for you. 

 7. Release Wage Garnishments

When you owe Uncle Sam money, the IRS can levy your wages, salary, or federal payments until the levy is released, your tax debt has been fully paid off, or the time expires for legally collecting the tax. There’s room here to bargain for a release or modification to the garnishment if you don’t have enough money to survive with the levy.

8. Stop the IRS from Levying Your Bank Account

The IRS can issue a bank levy to take your cash in savings and checking accounts to collect back taxes. When the IRS levies a bank account, the bank is required to remove whatever amount is available in your account that day (up to the amount of the IRS levy) and send it to the IRS in 21 days unless notified otherwise by the IRS. Part of the process of resolving your IRS debt is obtain a release of the levy from the IRS.

9. Innocent Spouse Relief

If you happen to inherit your spouse’s IRS tax problems, you have an escape route. If you can prove that your circumstances fit within the IRS guidelines for innocent spouse tax relief, you may not be subject to the taxes caused by your spouse or ex-spouse.

 10. Pay Attention to the Expiration of the Statue of Limitations

The IRS has 10 years from the date of assessment (usually close to the filing date) to collect all taxes, penalties and interest from you. An expert tax attorney, tax CPA or tax resolution specialist can help resolve your back taxes and IRS problems by just by advising and strategizing with you to wait out the 10 year expiration date.  This is a useful tool because you can file for a collection appeal to stop an IRS levy, lien, seizure or the denial or termination of an installment agreement. The collection appeal gives you the opportunity to explain how you think the situation could be solved without the IRS levy or seizure.

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