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jgordosea
jgordosea, Enrolled Agent
Category: Tax
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Experience:  I've prepared all types of taxes since 1987.
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I am 62 and doing some retirement planning. I plan to retire

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I am 62 and doing some retirement planning. I plan to retire at 66. I will have social security, a pension from a large company, Ira distributions, capital gains from stock buy back from a company I co-founded years ago, profit distributions from two small LLCs, a ROTH IRA, rental income from a basement apartment in my home and hopefully some amount of private consulting income. I am trying to figure out which items are taxable, at what rate and how they affect my social security.
Submitted: 10 months ago.
Category: Tax
Expert:  jgordosea replied 10 months ago.

Greetings,

 

As you know Social Security is reduced by earnings prior to retirement age.

For 2012 (from http://ssa-custhelp.ssa.gov/app/answers/detail/a_id/236/~/how-work-affects-social-security-retirement-payments )

"If you are under full retirement age for the entire year:

  • You can earn $15,120 gross wages or net self-employment a year and not lose any benefits in 2013.
  • We will deduct $1 in benefits for every $2 earned above $15,120."

The amount used for this is only wages and earnings - pension, any type IRA distributions, capital gains, rental income and pass through profit from an LLc are not counted. Only net income or wages from the consulting, wages or guaranteed payments from the LLC and any other salary or wages will be used for compute that reduction in social security benefits.

 

All of the income items except Roth IRA distributions are at least partly taxable.

Pension from a company taxable amount will depend on the type of pension and your contributions after tax, if any. If no after tax amounts were paid in then it will all be taxable. The same rule will apply to traditional IRA distributions.

Except for the pretax contributions everything else (except capital gain) is taxed as ordinary income.

 

The rate on ordinary income changes as you have more taxable income (after deductions and exemptions). For tables of the rate brackets and percentages please see http://www.forbes.com/sites/kellyphillipserb/2013/01/15/irs-announces-2013-tax-rates-standard-deduction-amounts-and-more/

 

Capital gain rate also now depends on your income level.

Capital gain rate is zero for the income up to the 15% rate bracket,
Capital gain rate is 15% for the income up to the 33% rate bracket,

Capital gain rate if 20% for income in the 39.3% rate bracket.

(sorry the rules are written to be so complex).

 

For most taxpayers a 15% rate applies to their capital gain income when the property was held for more than one year.

 

To summarize only salary, wages, guaranteed payments for services as a partner or LLC member and net income from self employment will be used to reduce the social security benefit.

Only Roth IRA distributions and return of pension or IRA after tax contributions will not be taxable.

Capital gain will have a lower rate than all other (ordinary) income.

Ordinary income rate depends on total of taxable income per the rate charts.

 

Please ask (reply to expert) if you need more discussion or clarification.

Thank you.

Customer: replied 10 months ago.
Thanks. This makes it more clear. What are the rules for the social security to be taxable?
Expert:  jgordosea replied 10 months ago.

Hello again,

 

Again this depends on income (and filing status).

 

When the total of one half the social security plus all other income is more than 25,000 for single filers (32,000 for married filing joint) none of the Social Security benefit is taxable.

 

From 50% to 85% of the Social Security benefit will be taxable for a single person when the total of one half the social security plus all other income is more than 25,000 and less than 34,000.

 

85% of the Social Security benefit will be taxable for a single person when the total of one half the social security plus all other income is more than 34,000.

 

For the worksheet see http://www.irs.gov/publications/p915/ar02.html#en_US_2012_publink1000263043

 

The worksheet and base amounts are for 2012 and can be indexed for inflation.

 

Again, sorry it is not possible to state this in more direct or simple terms.

 

Please continue to ask (reply to expert) if you need more discussion or clarification.

Thank you.

jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3000
Experience: I've prepared all types of taxes since 1987.
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