Soc Sec 6k Deduction
Freddie: If you're 65 or older, a $6,000 increase to your standard deduction could really reduce your taxable income and help stretch your retirement dollars further. In today's episode, we're going to look into and break down what this change means and who qualifies and how to make the most of it of the next Leibel on fire.
Hi everyone. Welcome to Leibel On Fire. I'm Freddie Bell, and with us is the expert. I'm talking about Leibel Sternbach. He's Amazon's bestselling author of Living with Financial Anxiety and also he authored the book Authenticity. Leibel, I'm excited to be with you. And we're talking about money, of course.
We're talking about the $6,000 increase. What is the new $6,000 standard deduction for people who are 65 and older and yeah. How do you qualify? Great
Leibel: question. Everyone wants free money. Um,
Freddie: free money. Free money. Free money.
Leibel: Yeah. Free money. So let, let's talk about it. So there's headlines running around about the $6,000 standard deduction increase, or $6,000, you know, free money credits, whatever.
They're all misleading. 'cause you know, the media is misleading and that's, you know, what they like to do, right? They make headlines that make you think, oh, you're getting something for free. Or the sky is falling. The reality is it's somewhere in the middle. So. Trump was trying to eliminate taxes on social security.
That was the goal. The goal was if you receive social security, you shouldn't be taxed on the income, which I'm all for. Right? You already paid money to get in there, right? They did a crappy job of growing your money. Why should you pay double taxes now that you're receiving it? All they could manage to pass through in Congress was this maximum $6,000 deduction on your income from Social Security, right?
So it does help reduce your social security tax bill. So if all your income is coming from Social Security and you don't have a lot of income coming from elsewhere. It will reduce the amount that you pay in taxes. However, for the vast majority of people, especially those who are starting to take required minimum distributions, that number is gonna be a lot less, right?
So is it a good thing? Yes, it's a good thing. Is it $6,000? Is it $6,000? as a credit, is it $6,000 as a deduction? Like you gotta talk to your financial advisor. We gotta figure out some real numbers here and figure out. Do you qualify for it? How much you qualify for it? How does it actually really impact you?
And this goes into a whole other question of how do we manage your cash flow in retirement, right? Because that's qualifying for these tax credits and deductions is kind of becomes the real game in retirement.
Freddie: Can you outline some of the qualification steps in this Leibel?
Leibel: Yeah. So when it comes to this, it's primarily based on income, so it's taxable income.
And this becomes a little bit of a convoluted process, so. Right now, let's start with if you Social security, you've got two levels of taxation on social security. You have. Level number one is if if you are adjusted gross income, and I shouldn't even say adjusted gross income 'cause that's the wrong number.
Social security has the wrong metric calculating this number. If your income threshold, which includes, interest and it includes dividends. So if your Social security income plus dividends plus interest income and other income is greater than a certain amount, you pay 50% of your social security number gets counted as taxable income on your tax return.
It is above another threshold, 85% of it gets put onto your tax return. Now, here's the strange part. Mm-hmm. This $6,000, I don't even know whether to call it a credit or a deduction. This $6,000 applies after that. So it then looks at your adjusted gross income and it says, based on your adjusted gross income you then qualify for anywhere between zero and $6,000 worth of these credits adjusted for inflation.
You may get some of it, you may get all of it. It does work better than the 50% or 85% counting as social security as taxable income. It could work towards other incomes, but the thresholds are pretty low for kind of disqualifying for it.
Freddie: Interesting. Everyone we're talking with Leibel Sternbach about this new, and you, uh, kind of, uh, hedged your bet a little bit in calling it a deduction, a $6,000 deduction.
So how do you know if you're 65 and over or over if you should take the standard deduction or if you should itemize?
Leibel: This would be independent of the itemizing. So this is like an extra bonus that Congress is giving you. What I will say though is chances are if you're itemizing your deductions, that if you're itemizing your deductions, you probably will start phasing out of these credits.
the $6,000. So that becomes a little bit of a challenge. However, you bring up another good point, which is as part of this bill, there was a change to charitable deductions and there was a change to the salt cap. So if you are in a state where you have high property tax or you have high state taxes, all of a sudden you're able to deduct more, but you have to itemize in order to be able to deduct it.
So suddenly we now have some games being able to be played where you front load expenses, front load charitable giving, you have more that you can just qualify for. There's also now a weird incentive that I have to look more into of about $1,500, I think it is, or $1750 that you can give to education.
That you can deduct. But it has to go to a charity or a nonprofit in order for you to deduct that. And that's something again, that you don't have to itemize to be able to get it. So there are a lot more. If in previous years you didn't itemize. This year is the year to take again, a look and see, maybe it makes sense to itemize, maybe it makes sense to front load some of your expenses or your charitable giving so that you can itemize and get more of those deductions.
Freddie: Explain front loading for those who don't understand the concept of, front loading those expenses where it works to your advantage.
Leibel: When we talk about taxes let's just talk about investments as a whole, right? So when we talk about investments we can go long, right? Which means I'm gonna buy something, I'm gonna hold it for the long run. They're short where I'm gonna sell something and it's gonna go down.
There's another thing, a term called arbitrage. It's a completely different way of investing, and it, what it does is it says, I don't care what it's gonna be. What I'm gonna do is I'm gonna take advantage of a mismatch in pricing, right? I know if I buy at one grocery store, you know, or one town, it costs a hundred dollars and the next town over it costs $101.
If I just buy it in one town and drive to the other town, I can make a dollar profit by selling it in the other town. Well, you can do the same thing with taxes. Taxes, you can arbitrage, right? You can say, well, I'm gonna pay less taxes now than I will in the future. Same thing. So front loading is I'm going to pay less taxes if I gather all of my deductions and instead of spreading it over a period of time, I front load them and concentrate them in a single year.
So if I know that every year I give $5,000 to charity or $10,000 to charity, I know I do that, right? Or I know, you know you have a business and you know that, I always spend $10,000 on my accountants. Maybe one year, right? You give to charity $25,000 or $30,000, and now all of a sudden, right, you're beyond that threshold and you're like, okay,
I'm giving five years all upfront at once, and now I get a deduction. So planning for kind of aggregating things that you would normally do over a period of time and doing it all at once is something that is one of those strategies where all of a sudden you get to qualify for some of these credits and it comes into play, not just in terms of like charitable deductions or the itemizing.
But it also comes into play for doing things like Roth conversions, right? Or timing of when you take your income, because this arbitrage opportunity of taking advantage of a mismatch in pricing, right? A mismatch in tax rates between now and the future, right? That is something that really becomes the name of the game in retirement is not all money is equal and not all time is equal, and you need to figure out what is the most beneficial for you.
So knowingly or unknowingly, Trump kind of handed people like me who do this type of advanced tax planning or forward tax planning, a gift in that we now have another tool in our quiver to do things.
Freddie: So finally, with that, with Social Security, RMDs or personal income to maximize tax savings, how do you coordinate all of that Leibel?
Leibel: Oh, how do you coordinate? It's a full-time job. It's a full-time job.
Freddie: Save the best question for last.
Leibel: Yeah. It's a full-time job, but it starts with knowing where you are today and projecting out in the future. And so we have a process for doing that. We have a retirement tax analysis which is exactly what you, you know, you asked right.
What we do is we take a look at where you are today. We project out the future and we map it out on taxes, right? We map it out, what income you need to take, where you're taking it from, investment gains, and then we look at taxes. What happens if we don't do anything? What happens if we
do Roth conversions. What happens if we max out, you know, we take income from this account versus that account, right? What happens if we delay social security? You take it early. How does it impact all of these numbers? And then how does it impact your bottom line? Right? Because that is the real important question, right?
Okay. Maybe you paid less in taxes, but did you end up with more spending power? Did you end up with more money in your pocket for now or in the future? If you're worried about your end of life expenses or what happens to your surviving spouse, right? We gotta prioritize which one's more important.
But these are the questions that we ask, and we have special software that we've developed for answering these questions because as you've probably guessed, it's kind of like doing calculus, right? It's not a straight line calculation. You gotta balance a whole bunch of things at the same time and see how they impact each other and then run, you know, really, you know, dozens or hundreds of scenarios to see what's the best outcome.
Freddie: We can get more information at yields4u.com?
Leibel: Yields4u.com, as well as we've got, you know, a whole bunch of buttons on our website for getting a free retire retirement tax analysis. Take us up on that. That is what we love doing for people. It is our pleasure. If all we did was help give you some guidance on some insight on the best decisions to make for yourself and your loved ones it's free for you, right?
Go through it. Deal with that. Um, we create a financial plan that is better than most people charge for, and I guarantee you will learn something at the end of it.
Freddie: And we've learned a lot today. He's Leibel Sternbach yields4u.com. That's yields 4 u. The the number 4, the letter u dot com.
That new $6,000 standard deduction for those 65 and older could help you to keep more of what you've earned. So it's important to you, I would think, to take more time to understand how it fits into your broader tax strategy In retirement. Small adjustments can lead to meaningful, meaningful savings. I'm Freddie Bell, and this is Leibel on Fire!
