What comes to mind when you think of “taxes”? Everyone remembers a headache — possibly a migraine. But taxes are an unavoidable part of life, and can be even more complicated in retirement. Below I’ve listed 5 tax items that every retiree needs to know about.
INCOME TAXES
Many retirees are confused about the income taxes they will pay once they stop working. This is because people are often misinformed about the state and federal tax implications of retirement. When you stop working, you no longer have to pay Social Security or Medicare payroll taxes. You will still have to pay income taxes on the state and federal levels, unless you live in one of the nine states without an income tax. (Nine states — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming)At that point, you would only have to pay the federal income tax, which ranges from 10% to 37% depending on your annual earnings.You should also pay taxes on other types of pre-tax retirement accounts you opened.
SOCIAL SECURITY TAXES
Despite the fact that Social Security should be intended for your remaining years after retirement, you may have to pay taxes on any additional income too. The amount you will pay in taxes increases depending on how much will be your combined income.It is made up of 50% of your Social Security Benefits for the year, adjusted gross income, salaries, interest from tax-exempt municipal bonds, and pensions.
The amount of taxes you pay on your Social Security benefits is directly connected to how much you earn through other sources — mainly, if your combined income is $25,000 or more. If your combined income is $25,000 or less per year, you won’t pay any taxes on your Social Security benefits. If it’s between $25,000 and $34,000 per year, that will be treated as taxable income and you’ll pay up to 50% in taxes on it. If it’s more than $34,000, 85% of that will be taxable.
SALES TAX
Whether you live in a state with sales tax or without sales tax, you’ll still be paying it. Whether you’re aware of it or not, every single day you spend money, you’re spending sales tax as well. Whether it comes as a surprise to you or not, the average sales tax rate in the U.S. is 7.12%, with Alaska having the lowest (1.76%), and Tennessee having the highest (9.55%).
PROPERTY TAXES
You probably own a home and pay property taxes on it. Homeowners pay property taxes based on the market value of the property and the county it’s located in. In most states, you might have to pay property taxes on tangible personal property like boats and cars as well.The average property tax rate nationwide is 1.1% of the average home value.
INHERITANCE AND ESTATE TAX
Estate taxes are levied as a percentage on some of the assets of people who die. The Internal Revenue Service (IRS) imposes an estate tax, as do some states. There’s no federal estate tax on assets up to $11.7 million, and those levels vary by state as well. One reason estates might owe taxes is that not all of a deceased person’s assets are exempt from taxation. If an estate owes taxes but can’t pay, beneficiaries might need to make up the difference – either by paying the IRS directly, or using their own assets to cover the tax liability.
How To Protect Your Retirement Savings
Retirement benefits are a big part of our lives. They provide an income for us when we need it, help us buy things we really want and can’t have easily in everyday life, and help us get out of debt. If you have a retirement account, there are important things you should remember.Retirement planning should be based on an individual’s needs and desires, not the needs of the pension funds or federal government. Also, be aware that some employers may try to get their employees to divert money from their retirement accounts for their own use. So, always ask first!
What You Should Know About Filing Taxes in Retirement?
To file taxes in retirement, you must be aware of two issues: filing status and residence. Filing status means the type of tax treatment you receive by filing a return or sending income to the government. Residence refers to where you live during the year. If you file your taxes primarily in one place, and occasionally move to another, then the rules may be different for filing taxes there than for filing taxes at your main home.
For more information, check out our website and learn about all the tax-filing plans we have.
Making the right plans for enjoying retirement is key to a fulfilling time, however it doesn’t have to be a difficult task. It can involve a combination of taking care of yourself financially, continuing to stay active and busy, and the company of those closest to you. By preparing now you can look forward to your retirement years with a sense of confidence and excitement.
We can’t wait for you to see your future. Imagine what could be!
