Tax season makes many people nervous, especially individuals who are retired or plan to retire. Once you retire, you are not exempt from paying taxes altogether, but you will not a decrease. Here are four different ways you can help minimize your income tax in retirement.
1. Watch Your Income
When you retire, your income will decrease. Since you are not working your regular job, it is only natural you look for other sources of revenue. Having other sources of income is fine, but make sure you keep up with how much money you make. One thing you want to avoid during retirement is paying high taxes.
2. Reduce Your Expenses
Reducing your expenses is essential for both taxes and retirement. You want to keep as much money as possible in your retirement fund. When you’re spending money on items that are not a necessity, you are draining your retirement fund, and that could place you in a different tax bracket that will cause you to pay more money in taxes. Staying under the 15 percent tax bracket allows you to keep money in your retirement fund and take advantage of different tax breaks, including earned income tax credit, job searching, and retirement saver’s credit.
3. Pay Off Your Mortgage
Before you retire, pay off your mortgage. If you can pay off your mortgage, it will be a significant expense you can look forward to getting rid of and saving more money in the future. A paid off mortgage gives you more flexibility with your expenses.
4. Social Security Tax
Depending on your combined income, your social security benefits are taxed accordingly. Your combined income consists of half of your social security benefits, adjusted gross income, and non-taxable interest. If you file taxes with your spouse, also known as filing jointly, and have a combined income that does not exceed $32,000, taxes will not be taken out of your social security benefits.
If you have questions regarding taxes or tax services, contact us today to see how we can help.