It’s bad enough that you have to pay Social Security taxes while you’re working. Even worse: You might be taxed on Social Security benefits you receive in retirement!
Strategy: If it looks like you’ll incur taxes on Social Security benefits, you might make some moves to reduce your tax liability.
Here’s the whole story: Whether or not you must pay tax on Social Security benefits depends on the amount of your “provisional income” (PI).
For this purpose, PI is the total of your AGI, tax-exempt interest income and one-half of the Social Security benefits received.
For example, if your AGI is $80,000 and you collect $12,000 in municipal bond income and $16,000 in Social Security benefits, your PI for the year is $100,000 ($80,000 + $12,000 + $8,000).
There are two tiers for taxing Social Security benefits.
Tier 1: If your PI is between $32,000 and $44,000 ($25,000 and $34,000 for single filers), you must pay tax on the lesser of...(register to read more)