If you only have social security to support you in your retirement years, you most likely won’t pay taxes on it. Even if you have a small amount of other income, you might get away with no taxes on your social security income. However, if you have significant income other than social security, you could pay taxes on up to 85 percent of your social security income. The amount that is taxable depends on how much other income you have and could be as low as 1 percent.
If you can manage without collecting social security at full retirement, you should wait until you are 70. You’ll get more money in each check since you waited, and you’ll avoid taxes if you have the additional income. If you do need to take social security benefits and that money is taxed, you can reduce those taxes by reducing your adjusted gross income with deductions.
IRAs, 401(k)s, pensions, and other retirement accounts are usually taxable. You’ll have to report any withdrawals on your tax return. Your tax rate depends on how much income and deductions you have. However, if you withdraw a lot, but you also have a lot of deductions, your taxes might not be as high as you thought they would be.
If you have annuities, the taxes are based on whether a retirement account, such as an IRA, owns it, or if you purchased the annuity with after-tax dollars. If a retirement account owns the annuity, the retirement account’s tax rules apply. The annuity tax rules apply if you purchased the annuity with after-tax dollars. If you have an immediate annuity, the part of the distribution that accumulates interest is the only part that you must claim on your taxes. The annuity company tells you what your exclusion ratio is every year. This is the amount that is non-taxable.
If you have a fixed or variable annuity, you have to withdraw earnings first, which means that everything you withdraw is taxable if the annuity account is worth more than what you originally contributed to it. Once you start withdrawing the original contributions, that income is not taxable.
You will always pay taxes on dividends, capital gains, and interest on investment income. When you sell investments to create retirement income, you must report a capital gain or loss on your tax return. However, if you don’t have a lot of other income, you could qualify for a zero percent capital gains tax rate. While Florida is very tax-friendly, you do have to pay federal taxes.
Since Florida does not have estate taxes, the only taxes you need to worry about are those that exceed the federal exemption. The exemption was $5,490,000 in 2017 and increased to $11,580,000 in 2020. Since you are allowed to “gift” a certain amount each year, you can reduce the value of your estate by gifting property to your heirs prior to your death. That amount also changes, so be sure to speak with a Florida tax attorney before you start gifting any part of your estate.
Contact A Tax Attorney In Florida
If this is your first year filing taxes as a retired Florida resident, it’s extremely beneficial to consider working with an experienced tax attorney who can set you up for financial success throughout your entire retirement. Even if your assets are worth less than $100,000, you could save your heirs’ money. Set up a proper estate plan to deal with some or all of the taxes you might pay during retirement and after your death. Reach out to our team of experts to get started!