It is surprisingly complicated to ascertain the amount of Social Security benefits that your clients must include in their taxable income. The good news is that at least 15 percent of Social Security retirement benefits are excluded from tax, and in some cases, Social Security benefits are totally exempt. In addition, clients who are able to lower their adjusted gross income (e.g., by taking tax-free Roth or health savings account (HSA) distributions instead of taxable retirement distributions) may decrease or eliminate the amount of their Social Security income that is subject to taxation. The bad news is that tax-exempt bonds and harvested capital gains lose some of their luster if the taxation of Social Security benefits is a concern for your client.
Author: Kenn Beam Tacchino, JD, LLM, is a professor of taxation and financial planning at Widener University in Chester, PA. Professor Tacchino has won awards for both his teaching and his scholarly writing. Among other consulting activities, he conducts retirement planning seminars for employee groups.
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