A portion of your Social Security benefits is
taxed as income if your income is above a base amount based on your filing
status. The formula is confusing, and I
won’t bore you with it. Suffice it to
say it is a good thing we have computers to calculate it.
If you were taxed on part of your benefits in 2012 or expect to be in 2013, here are some tips:
- Reduce your income by selling your stock market losers. If you sold stocks at a gain, consider selling other stocks with current unbooked losses. You can always buy back the stock after 30 days (to avoid the wash sale rules) or buy a different stock in the same industry now.
- Use taxable investments (non-tax deferred investments) to pay living expenses first. CDs and money market accounts produce taxable income that increases your income and the tax on your benefits.
- Defer taxable income to next year. Don’t buy mutual funds right before their dividend date. Sell assets using an installment sale.
- Consider using a Section 1031 exchange to defer taxes if you are selling real estate.
- If you are considering buying business assets soon, do so before year-end to lower your income.
- Hire a tax professional to help you with tax planning. The tax code is very complicated and mind-boggling. This is definitely not a DIY project.
