How to Avoid Taxes on Your Social Security Benefits
Did you know that if your income is high enough, you'll have to pay taxes on some of your Social Security benefits? In fact, you may have to pay income tax on up to 85% of your retirement benefit checks. Luckily, there are ways to reduce or even eliminate those taxes by making most of your income nontaxable.
Whether or not your Social Security benefits are taxed depends on your "combined income." If your adjusted gross income (which includes all taxable forms of income, including distributions from your traditional 401(k) or IRA), plus any nontaxable interest, plus one-half your annual Social Security benefits exceeds a certain threshold, then your Social Security benefits become taxable. For single filers, the minimum threshold is $25,000 in combined income per year; for joint filers, it's $32,000 per year (if you're married filing separately, the threshold is zero -- so you may wish to avoid this filing status once you start getting Social Security benefits).
The higher your combined income, the more taxes you'll likely pay on your Social Security benefits. Depending on your total income under this formula, you could end up owing taxes on up to 85% of your Social Security checks. You can find more information on whether and how much your benefits will be taxed here.
Source: Fool.com
