Each scenario is different and individuals must consider their spending, their goals for the year and long-term lifestyle considerations.
Jefferson City, MO (PRWEB) December 29, 2015
Bert Doerhoff CPA, founder of AccuBiz, responds to a recent Forbes article that discusses a number of scenarios that can occur when Social Security payments are delayed. There are many factors individuals should know when they decide to start receiving Social Security benefits, and recent media coverage on the topic has prompted AccuBiz to respond.
Doerhoff says delaying Social Security gives taxpayers increased funds if they wait until they are older, but the benefits of delaying only multiply when the impact of taxes is included in the mix. When Social Security is delayed, it becomes easier to control tax brackets and the amount of tax paid on income.
For instance, a married couple both at the age of 62 that files jointly on their tax return can choose how to receive income to avoid a tax bill. While delaying receiving Social Security, they can spend $20,600 from tax-qualified accounts to get the standard deduction and personal exemption. Another $74,900 in income could be accessed from long-term capital gains and qualified dividends and their tax bill would still be $0.
In another example Doerhoff encountered recently, an individual had started drawing Social Security at the age of 62 and had a large IRA. However, there was also a large home mortgage. The individual drew money out of the IRA to pay off the home mortgage. This placed the taxpayer in a higher tax bracket for one year, but they were also required to pay tax on 85 percent of the Social Security income for that year.
The following year, the taxable income was so low that none of the Social Security was taxable. This is an instance in which paying off the home mortgage while delaying receipt of Social Security funds would have created a significant tax savings. The individual would have avoided paying 85 percent tax on the Social Security at a 33 percent tax rate in that first year.
“Each scenario is different and individuals must consider their spending, their goals for the year and long-term lifestyle considerations,” says Doerhoff. “A couple that does not make it a goal to avoid paying a tax bill may want to use the time before they receive Social Security to convert IRA funds to Roth IRAs, for instance.”
Because life expectancy and income scenarios vary significantly, individuals should take the time to know their options rather than just assume Social Security is a one-and-done situation. “There is no magic answer for when to draw Social Security, but doing some planning to determine what makes the most sense is worth the effort,” says Doerhoff. “Making decisions about when to receive Social Security and avoiding a heavy tax bill should involve professional guidance from your accountant.”
Bert Doerhoff, CPA, works closely with small business owners to minimize income tax and fill the gaps so the owner has more time to work on the customer centered core services. Doerhoff and his team can outsource all functions of an accounting department, from bookkeeping to CFO services. The CPA firm has multiple QuickBooks advisors to help clients maximize the benefits provided by their accounting system. Doerhoff is co-author of Six Steps to Small Business Success available on Amazon. Contact Bert Doerhoff, CPA, by email at bdcpa(at)AccuBiz(dot)net; by phone at (573) 634-4006; or learn more at http://www.AccuBiz.net.