by Moe Zilla

Created on: February 28, 2010

Here's the most important question: do you even need to pay taxes? Even the IRS admits that if your only income comes from your social security benefits, "your benefits may not be taxable and you may not  have to file a tax return." So if you're thinking about earning extra income, look at how much it's going to increase the taxes on your benefits. It's worth calculating the difference - just to see how much you're really going to make!

See, even if you're receiving other income, the benefits still aren't taxable unless your modified adjusted gross income exceeds "the base amount for your filing status".  So what is the base amount for 2009? It's $32,000 for married couples filing jointly.

Unfortunately, if you're filing separately, then the base amount is $0 -  so if you received money besides your benefits, then your benefits will be taxed. But there's an interesting exception. The threshhold rises to $25,000 if you're single, the head of household, or a qualifying widow/widower with a dependent child  - or, for married individuals filing separately "who did not live with their spouses at any time during the year".

This leads to one of the most important tax-planning strategies for retirees. You can choose to have money withheld from your social security benefits. This will cover whatever income tax is due on the benefits. And it's even possible that at the end of the year, the government may end up owing you a refund! (Though unfortunately, if your benefits are taxable - then you also can't use form 1040EZ.)

One of the most important tax decisions you can make is choosing the state in which you'll retire. For example, some states won't tax your retirement income at all - but there's an important caveat. MSN Money once noted that property taxes make up a good chunk of a retiree's tax bill. "When people are considering a retirement relocation destination, I think most of them focus too much on income taxes," one expert explained. "While many states might exclude some or all of your pension from income taxes, property taxes go on - and often up - year after year."

But here's what's probably the most important tax-planning tip of all: you eligible for free tax counseling. The American Association of Retired People (AARP) offers free one-on-one counselling sessions every year between February 1 and April 15. And they'll also provide counseling over the phone - or even the internet - offering advice on how to prepare basic tax schedules. You can located one of their free tax counselors at this web page.  

Just input your zip code!

Learn more about this author, Moe Zilla.
Click here to send this author comments or questions.