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Slash retiree taxes on Social Security benefits

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in Small Business Tax,Small Business Tax Deduction Strategies

Don’t expect the taxman to go easy on you in retirement. When you start collecting Social Security retirement benefits, up to 85% of the benefits may be taxable.

Strategy: Be proactive about taxation of Social Security benefits. Depending on your situation, you can use one or more of the four strategies below to reduce or eliminate tax liability.

There is a common denominator. Each of the strategies is aimed at limiting your “provisional income” (PI) for Social Security purposes.

How it works: PI is an awkward tally of adjusted gross income (AGI); tax-exempt interest income; and one-half of the Social Security retirement benefits received. For example, if someone’s AGI for 2010 is $100,000; municipal bond income is $5,000; and Social Security benefits are $20,000, the PI is $115,000. What often confuses taxpayers is the inclusion of interest income that is otherwise tax-exempt in the PI computation.

The higher the PI, the greater t...(register to read more)

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