Tax season is right around the corner, and if you are not prepared, it is time to start planning. Tax preparation can be daunting, so consider using accounting services to get ahead of the curve. Today we will explore topics specifically for those living on or about to be living on retirement income. Congratulations on making it to this stage of your life.
Hopefully, over the course of your employment, you have done the math on what you need income-wise to live comfortably within your means and desired retired lifestyle. Despite this preparation, you might not have thought about how taxes could impact you or how to make some serious savings in the upcoming tax season. With no time to waste, let’s get started on all things related to taxes, retirement, and savings in 2023.
Filing Your Taxes When Receiving Social Security Benefits
Everyone needs to know that taxes follow you even in retirement. Whether you are collecting social security benefits, your retirement income, or a combination of both, your Social Security income will be taxed if it is above the IRS threshold. Many people don’t realize this could happen, so be prepared by diversifying your retirement income with accounts like a Roth IRA, part-time work and income. Furthermore, lessening your intake to below the threshold can impact your tax return.
The Right Tax Preparation for Retirees
A financial advisor or accounting services can assist in this sort of tax compliance to help you decide what is best for you, your money, and your financial future. Social security taxes also depend on where you live in the United States. You can check the list here – and also check your state’s tax requirements for those of you already in retirement. It is no secret that many retired people move south to enjoy tax-free retirements! Tax season can be the rude awakening retired people never knew they were going to get. Don’t let that be you!
Tax Changes for Retirement in 2023
2023 brings a new year and thus new changes for both taxation in general across the board and retirement. Also, it is important to note, that tax changes could vary based on if you worked/retired in the previous year or not. So, if you are preparing to retire in 2023, take notes and get prepared now.
Let’s explore what will change in 2023.
- Maximum taxable income earnings will increase, meaning people will pay more taxes on Social Security benefits.
- Social Security benefits will grow – use this calculator to determine if yours will grow and by how much.
- New beneficiaries may be subject to new rules that put them at a disadvantage.
So, what does this mean for retired citizens? Stay up to date on all things taxes so you can maximize your benefits and live comfortably in retirement. It is not just about saving the right amount of money to get there, but also for the aftermath financially.
What Tax Breaks are Available?
Most people in the retirement bracket are people over the age of 65, which qualifies them for extra tax breaks. This means that while single and joint filers have their own standard deduction thresholds, those ages 65 or older have higher standard deductions simply because of their age.
Traditionally, marriage on its own is a tax break, but for those in marriages with one retired spouse and the other still working, then the working spouse can contribute to a Roth IRA that the retired spouse owns. Just be careful to note all contribution limits that apply, so you are not penalized.
There are also tax deductions for Medicare premiums and low-income tax to take advantage of if either of these categories applies to you or your household. Always do your research to prepare for tax season, or team up with a tax expert to guide you.
How Can You Lower Your Taxes?
Lowering your taxes is possible if you know the rules to stay compliant and understand the nuances of your income.
1. Know Your Retirement Plan and its Taxation Status
- Are you on a tax-deferred retirement plan?
- Do you have a pension that is fully or partially taxable?
- Do you have a part-time job?
- Are you paying for health insurance or taking a lump sum out of your account or doing monthly installments?
The answers to these questions can help guide you on the next steps in terms of lowering your taxes. If this is overwhelming for you, which is for many people, a financial advisor can be the best solution to figure it out.
2. Start taking retirement income before you use Social Security benefits.
- Depending on your plan and state, there are certain age limits where you can begin withdrawing money from your retirement account without tax penalty (in some places the age is 55, others up to 59.5 years old). This will help keep your income lower over time so that you can bypass the taxable threshold set by the IRS on Social Security benefits. Avoid doing lump-sum pension payouts and taking too much out before you need it so that you save your income in the long run.
3. Invest in stocks and take advantage of write-offs.
- Okay, so this one is not specific to those in retirement but is still important to note for helping to lower taxes!
Tax Planning for Retirement Income with Waters Hardy
Being retired is no excuse to be out of tax compliance – the IRS doesn’t care what stage of life you are in so long as you do your personal accounting properly. Take the stress away from tax preparation with the support of Waters Hardy.
Our team of financial advisors and tax experts will help customize the best tax solutions for your retirement income and get the best savings guaranteed so that you can prepare for or live in retirement with ease.
Contact us now to get started!