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Sound Advice: November 8, 2023

A Few Thoughts About Taxes

Taxes are a given unless you happen to be spending most of your time in the Cayman Islands or Jersey (not New Jersey).  For those of us who have to keep these things in mind, it’s worth a few moments to review some of the issues that investors regularly have to deal with.

Investors whose strategy is long-term holding get the benefit of reduced taxes on their gains.  Long term means more than one year.  Short term, on the other hand, means both the buy and sell transactions were completed within one year.  The tax bite on short-term gains is at the ordinary income tax rate.

For those who sell for a “tax loss” and then plan to buy back, there’s a hitch.  The hitch is that the buyback must wait more than 30 days from the prior sale or no loss can be claimed.

For Social Security, there are also issues to be kept in mind.  These have to do with the time when benefits begin.  One can begin as early as 62 or as late as 70.  There’s a considerable difference between the two.

If you take early retirement, which means before Full Retirement Age (FRA), currently 67 (for people born in 1960 and later), there is a penalty of 5/9 of one per cent for each month before normal retirement age, up to 36 months.

It gets worse.  If you are under FRA, you will lose $1 from your benefit payments for every $2 you earn above the annual limit.  Currently, that limit is $21,240.  In the year you reach FRA, the deduction from benefits is reduced to $1 for every $3 earned above the limit.

For those on Medicare, there’s another consideration.  That’s the deduction from social security benefits for Part B insurance, which is payment to physicians. Premiums range from $164.90 for married couples with modified adjusted gross income (MAGI) of $194,000 or less to $395.60 for married couples with MAGI above $750,000.

Similarly, there are deductions for Part D (prescription drug coverage) ranging from $70.00 to $76.40, depending on MAGI.

N. Russell Wayne, CFP

Any questions?  Please contact me at nrwayne@soundasset.com


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