Retirees! Beware of "Indirect" Taxes!Submitted by M.K. Byrne & Co. on October 17th, 2017
October 2017 - Retirees! Beware of “Indirect” Taxes!: As taxpayers approach and enter their retirement years, there are a number of new and fairly nuanced tax considerations to be aware of. For instance, only up to 85% of your Social Security Benefit is taxable AND your Medicare Part B and Part D monthly premium payment will be based on your Modified Adjusted Gross Income (MAGI) level from your tax return filed two years prior to the current tax year. Additionally, in computing the taxable portion of your Social Security Benefit and Medicare premiums, certain “non-taxable” items like municipal bond interest are INCLUDED in the definition of “income” for Social Security and Medicare purposes.
With these considerations in mind, a taxpayer should pay close attention to certain transactions like the sale of a large investment or the implementation of a new “tax-free” investment strategy. The tax code is complex and, while the sale of a large investment might seem fairly straightforward based on the stated tax rate, it may result in significant forms of “indirect taxation.” In other words, that $20,000 stock sale might only be taxed at “15%” per the IRS Tax Table. However, since that sale increases your income, you may be subject to additional taxes on your Social Security Benefit and even a higher Medicare Part B or D Premium in two years. Therefore, the true “tax rate” on the stock sale was much higher than the stated “15%.” If retired, we would strongly advise conducting a complete Tax & Social Security/Medicare analysis with a CPA or Attorney prior to executing any new income-generating transactions.