How To Avoid Paying Taxes on your Social Security
We enjoy a lot of facilities in the modern world and the present-day economies offer us nice jobs and financial freedom. If you have enough buying power, the standard of life can be much higher than what it was some decades ago. However, life remains as unpredictable as centuries ago and we should be mentally prepared for any hiccup or accident. The modern-corporate world offers a healthy and prosperous career to millions of people all across the globe, but if luck is not going your way, you may lose your job on any given day.
Such a situation can be an absolute nightmare in third world countries, where there is no concept of a welfare state. However, in some of the countries like the United Kingdom and United States of America, the governments do take care of their people in shape of unemployment checks, which are also called social security.
If you are employed and having a smooth career, it is your obligation to pay taxes to the government. However, if you are living on a small social security check, you want to spend every single penny very carefully and it gets immensely hard for you to pay tax on the social security. However, if you are smart, you can avoid this scenario and save your social security.
Instructions
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1
Go through the last year’s tax return
You need to have a look at the front side of last year’s tax return. On form 1040, the first part shows all the sources of income that your were taxed on. If any amount of money is listed on the right side of that row, then your social security income is taxable; however, the modified adjusted gross income has to be $25000 or more if you file it individually. If you file your tax jointly, then it has to be $32000 or more.
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2
Reallocating the investments
If you have taxable investment income like interest, dividends or capital gains, you can reallocate those investments into tax-free accounts or other kind of investment, which should help you get rid of the taxes.
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3
Selling the investments to lower the income
One way of avoid paying tax on your social security is to sell your taxable investments and buy them back inside a traditional IRA. Keep in mind that you do not have to sell all your investments. Just sell them to an extent that your income is lowered and your social security is not taxed.
