Taxation of Social Security income

By Steve Savant

As most of you know, seniors receiving Social Security income may be taxed on up to 85 percent of Social Security income. You can refer to line 20(b) of IRS form 1040 to see what portion, if any, is taxable on a client’s tax return.

The wicked aspect of this is that the entire Social Security income could be included in income at the 85 percent rate. Regular tax brackets do not do this so this is a bit extreme.

We care about this because through the use of deferred annuities, life insurance and immediate annuities we can help replace assets producing annual taxable income into assets that reduce modified adjusted gross income for testing purposes. This may have a substantial effect on taxing Social Security income, thereby reducing income taxes.