“Common Tax Challenges for Soon-to-Retire Individuals”

1. Required minimum distributions: Retirees may need to start taking withdrawals from their retirement accounts once they reach a certain age, which could affect their taxable income.

2. Selling the principal residence: Retirees who want to downsize and sell their homes may be able to exclude up to $250,000 (or $500,000 for joint filers) of the gain from their income, but they must meet specific requirements to do so.

3. Inclusion of withdrawals in taxable income: Any withdrawals from retirement accounts, beyond the minimum required amount, will be included in taxable income, except for qualified distributions from Roth accounts or any part that was previously taxed.

4. Identifying basis for home sale: Retirees selling their homes should ensure they have identified all items that should be included in the basis of the sale, as this can impact the amount of tax owed. 1. When starting a new venture, retirees should consider the best legal structure for their business, such as sole proprietorship, S corporation, C corporation, partnership, or limited liability company.
2. Retirees launching a new business should be aware of how to elect to amortize start-up expenditures and make payroll tax deposits, as well as the potential for home office deductions.
3. Retirees who continue to work may need to give back Social Security benefits if their wages and self-employment income exceed the annual exempt amount.
4. Retirees who reach full retirement age in a given year may have their Social Security benefits reduced depending on their earnings.
5. Retirees may have to pay federal (and possibly state) tax on their Social Security benefits, and may need to report up to 85% of their benefits as income on their tax return.
6. Retirees are encouraged to engage in tax planning to maximize the tax breaks available to them after retirement. 1. Tax deductions can help reduce taxable income.
2. Tax credits can provide a dollar-for-dollar reduction in taxes owed.
3. Tax planning can help individuals and businesses manage their tax liabilities.

Four Tax Challenges You May Encounter If You’re Retiring Soon