WHEN 85% OF YOUR SOCIAL SECURITY IS TAXABLE
-IF YOUR INCOME EXCEEDS $60,000 part may be taxed at 50% and part at 85%- If your Adjusted Gross income reaches a high enough level, then it is all taxed at 85%.
If you have $32,000 in other income, then half of your social security would be taxable and if you have $44,000 other income, then 85% of your Social Security would be taxable.
If you and your spouse receive $16,000 each in Social security ($32,000 X 50%) + another $16000--this would total to $ 32,000 which would be your Adjusted Gross income. If your Adjusted gross income was higher than $ 32,000 then part of the Social Security would be taxable.
If you use 100% of social security instead of half, then the tax on social security would be based on $ 60,000 or $44,000 for calculating the point at which 50% or 85% becomes taxable.
Social Security ……........$32,000
Tax Exempt Interest...…16,000
IRA Withdrawal…....….…12,002
Total Income………....…...60,002
Taxable Social Security $ 6002
(60,000 –48,000) X 50% =6000
($ 60002 – 60000) X 85% = $1.70 (rounded to $ 2)
$6000 + $ 2 = $6002 taxable social security..
Adjusted Gross Income:
IRA Withdrawal…...$ 12,002
Taxable SS…………...…..6002
Taxable Income……..$ 18004
There is no tax due since the standard deduction and exemptions exceed the adjusted gross income.
SITUATION No 2 Income is same as previous Situation plus $ 100,000 Capital Gain.
Income from Example No. 4 = $ 60,002
Capital Gain……………......………100,000
Total Income…………….......……160,002
Taxable Social Security = $ 32,000 X 85% = 27,200
NOTE: Instead of taxing the entire excess over $ 48,000 at 85%, the tax is limited to 85% of total social security.
Adjusted Gross Income:
Social Security ……......$27200
Tax Exempt Interest.……..…0
IRA Withdrawal…….…12,002
Capital Gain…………...100,000
Adjusted Gross Income..139,202.
Tax after exemptions and standard deduction = 13194 minus $ 40 refund of telephone excise tax.
TOMORROW’S BLOG WILL show the effect of withdrawing an IRA purchased for more than its value when withdrawn and effect on Social Security taxability.
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This information is not intended to be advice to the recipient. In compliance with Treasury Department Circular 230, unless stated to the contrary, any Federal Tax advice contained in this Blog was not intended or written to be used and cannot be used for the purposes of avoiding penalties.
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