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of the benefits received, Lisa uses only the amount paid for her
Taxable Social benefit. The amounts paid for Christopher and Michelle must
Security Benefits be added to each child’s other income to see whether any of
those benefits are taxable to either of the children.
Withholding. A taxpayer can choose to have federal in-
 Planning Tip: If the only income received during the come tax withheld from Social Security or Railroad Re-
year was Social Security or Railroad Retirement benefits, tirement benefits by completing Form W-4V, Voluntary
the benefits are generally not taxable. Taxpayers should Withholding Statement.
consider taking taxable IRA distributions and/or doing
Roth conversions. Careful planning must be made to not Investments That Help Reduce Taxable
take too large of a distribution so as to cause Social Secu- Social Security Benefits
rity or Railroad Retirement benefits to be taxable.
Taxpayers may be able to reduce taxable Social Security
Example #2: Assume the same facts as Example #1 however
the combined interest income for John and Betty is $10,000 benefits by reallocating investments that are generat-
instead of $500. Their income used to determine if Social Se- ing income which is includable in the calculation used
curity benefits are taxable ($37,500) is greater than the tax- to determine taxable Social Security benefits to invest-
able Social Security base amount ($32,000) for joint filers. ments that do not generate includable income.
Therefore, some of their Social Security benefits are taxable.
Tax Planning Strategies
Worksheet to Determine if Benefits May Be Taxable U.S. Series EE and I bonds. Taxpayers who are earning
A) Amount of Social Security or Railroad Retirement taxable interest income from a bank CD that is causing
$ 11,000
Benefits .......................................................................... A) ______ a portion of Social Security benefits to be taxed, could
$ 5,500
B) One-half of amount on line A ........................................ B) ______ switch the investment to U.S. savings bonds. Annual
C) Taxable pensions, wages, interest, dividends, and purchase limits apply.
$ 32,000
other taxable income ......................................................C) ______ Nonqualified annuities. Like interest accrued on U.S.
D) Tax-exempt interest plus any exclusions savings bonds, earnings on a nonqualified annuity are
from income ................................................................... D) ______ $ 0 deferred until the investment is cashed in. One advan-
$ 37,500
E) Add lines B, C, and D...................................................... E) ______ tage of choosing nonqualified annuities rather the U.S.
savings bonds is there is no annual limit on the amount
of principal that can be invested.
How Much Is Taxable? Real estate, gold, and other investments that produce
Generally, up to 50% of benefits will be taxable. How- capital gains. By switching investments from mutual
ever, up to 85% of benefits can be taxable if either of the funds and stocks that produce dividend income to in-
following situations applies. vestments that produce capital gains, the taxpayer may
• The total of one-half of the benefits and all other in- realize tax savings by reducing the amount of Social Se-
come is more than $34,000 ($44,000 for Married Filing curity benefits subject to tax.
Jointly).
• The taxpayer is Married Filing Separately and lived
with his or her spouse at any time during the year.
Who is taxed. Benefits are included in the taxable in- Contact Us
come (if taxable) for the person who has the legal right There are many events that occur during the year that can affect
to receive the benefits. your tax situation. Preparation of your tax return involves sum-
marizing transactions and events that occurred during the prior
Example: Lisa receives Social Security benefits as a surviving year. In most situations, treatment is firmly established at the
spouse who is caring for two dependent children, Christopher, time the transaction occurs. However, negative tax effects can
be avoided by proper planning. Please contact us in advance
age 9, and Michelle, age 7. As dependents of their deceased if you have questions about the tax effects of a transaction or
father, Christopher and Michelle also receive Social Security event, including the following:
benefits. The benefits for Christopher and Michelle are made • Pension or IRA distributions. • Retirement.
payable to Lisa. When calculating the taxable portion (if any) • Significant change in income or • Notice from IRS or other
deductions.
revenue department.
• Job change. • Divorce or separation.
This brochure contains general information for taxpayers and • Marriage. • Self-employment.
should not be relied upon as the only source of authority. • Attainment of age 59½ or 70½. • Charitable contributions
Taxpayers should seek professional tax advice for more information. • Sale or purchase of a business. of property in excess of
• Sale or purchase of a residence $5,000.
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All Rights Reserved

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