Social Security Changes

[greystroke]

Not rich but I have a story for you.

Before the Bush Tax cuts my tax bracket was 28%.. Drawing SS and doing extra contract work.

We went to Biloxi and DW won a 1500 jackpot. Hmmmm. Happy?

My taxes on this jackpot was 28 percent as expected but since my our income increase by 1500 so did the amount that I was required to pay for SS taxes. So in a nutshell 28 percent of 1500 plus 15 percent of 1500 for ss ...for a total of 43 percent of 1500. Taxes on the 1500 was 645.

Some how I forgot to tell the IRS and they immediately sent a bill for 750..645 plus penalty. I told DW..no more jackpots...The 1500 went back into the machines and I was left with a tax bill on money I did not get.

This happened to lot of people but since they didn't fill out their own taxes they didn't know it.

But our budget was balanced!!!! No one believes this when I tell them when I earned additional income on top of what I made that it would be taxed higher than the rich brackets.

The tax brackets have widen since then so if the Bush cuts expire my taxes go up but not to the extreme they used to be. But if it puts our country on the right track I won't complain.

Ok Ok Got on my thickskin coat, tell me this never happened. I still have the returns.

[Lindsay Richards]

Doing away with the tax cuts we have enjoyed for more than a decade through great times and bad times in many's opinion will not put our country on the right track. Higher taxes have always lead to lower revenues. What we need is tax reform which would get rid of all of the loopholes of the 75,000 pages of the tax code, broaden the base and promote job growth. This would go a long way to helping improve our manufacturing base and retaining jobs in America. We have the highest business taxes in the world now and many countries have been lowering them (Japan and Canada for example) with great success. Our choices are to grow our way out of this mess or tax and borrow our way out. To me the choice is clear.

[wnytaxman]

Originally Posted by greystroke

Not rich but I have a story for you.

Before the Bush Tax cuts my tax bracket was 28%.. Drawing SS and doing extra contract work.

We went to Biloxi and DW won a 1500 jackpot. Hmmmm. Happy?

My taxes on this jackpot was 28 percent as expected but since my our income increase by 1500 so did the amount that I was required to pay for SS taxes. So in a nutshell 28 percent of 1500 plus 15 percent of 1500 for ss ...for a total of 43 percent of 1500. Taxes on the 1500 was 645.

Some how I forgot to tell the IRS and they immediately sent a bill for 750..645 plus penalty. I told DW..no more jackpots...The 1500 went back into the machines and I was left with a tax bill on money I did not get.

This happened to lot of people but since they didn't fill out their own taxes they didn't know it.

But our budget was balanced!!!! No one believes this when I tell them when I earned additional income on top of what I made that it would be taxed higher than the rich brackets.

The tax brackets have widen since then so if the Bush cuts expire my taxes go up but not to the extreme they used to be. But if it puts our country on the right track I won't complain.

Ok Ok Got on my thickskin coat, tell me this never happened. I still have the returns.

Sorry, but I don't understand how you could have your Social Security taxed at 15% due to your winnings. You do not pay SS tax on your unearned income, which gambling is unless you are a professional gambler. At your bracket, you would automatically be paying income tax on 85% of your SS benefits, so there should have been no effect on your taxes other than the additional income of $1500. I would suggest you have a tax professional look at your tax bill for the additional income. If you paid SS tax on gambling, then the Feds owe you some money.

[RickO]

Originally Posted by greystroke

Some how I forgot to tell the IRS and they immediately sent a bill for 750..645 plus penalty. I told DW..no more jackpots...The 1500 went back into the machines and I was left with a tax bill on money I did not get.

.

Just curious... why didn't you deduct your gambling losses from your gambling winnings? My understanding is that you can't offset regular income with gambling losses but you can offset winnings with it.

Rick

[greystroke]

Originally Posted by wnytaxman

Sorry, but I don't understand how you could have your Social Security taxed at 15% due to your winnings. You do not pay SS tax on your unearned income, which gambling is unless you are a professional gambler. At your bracket, you would automatically be paying income tax on 85% of your SS benefits, so there should have been no effect on your taxes other than the additional income of $1500. I would suggest you have a tax professional look at your tax bill for the additional income. If you paid SS tax on gambling, then the Feds owe you some money.

You will have to get a set of 1040 instructions say 98 99 etc. Remember I was billed from the IRS.

Ok here it is. Your assumption was incorrect because I was still paying less than 85 percent on SS. In other words I was not paying full taxes on ss. The brackets were not as wide as they are now. So in this case you are dead wrong.

The way it is now. you have a 10, 15 bracket. I am in the 15 bracket. If I earn say 10,000 additional or more realistic a withdrawal from my 401. It will be taxed at 15% I will also have to pay additional taxes on ss since I am not at the 85% level. It actually figures out to about 25 so that is what I withhold on withdrawals.

The difference back then was no 10 and you entered the 28 sooner.

Afew years before drawing ss a professional filled out my returns and I stopped it after an IRS AUDIT that cost me thousands including getting a tax lawyer. So sorry, no more professionals. Every year now I use computer programs to do it and every year now I also do the computations manually to check the program.

If this gets hot for non-believers I may be able to find an old set of instructions in the attic but it won't be this week.

[wnytaxman]

Rick, if he didn't itemize his deductions, which is quite possible due to living in a no income tax state like Florida, then he can't take his gambling losses against his gambling income. You have to be able to itemize to take gambling losses against gambling income.

[Lindsay Richards]

Be sure to use Turbo Tax. It saved Timmy Geithner $38,000. We stopped doing our own taxes to prevent arguments and divorce.

[RickO]

Originally Posted by wnytaxman

Rick, if he didn't itemize his deductions, which is quite possible due to living in a no income tax state like Florida, then he can't take his gambling losses against his gambling income. You have to be able to itemize to take gambling losses against gambling income.

Thanks. I knew that but "assumed" that being in those tax brackets with multiple sources of income itemizing would be in order but I guess not.

Rick

[greystroke]

Originally Posted by RickO

Just curious... why didn't you deduct your gambling losses from your gambling winnings? My understanding is that you can't offset regular income with gambling losses but you can offset winnings with it.

Rick

Gambling winnings go on as income. If I can't itemize I cannot deduct the winnings as losses if I lose it.

If you know of a way to deduct it without itemizing then maybe I need a tax professional. I sure would like to know.

[greystroke]

Originally Posted by RickO

Thanks. I knew that but "assumed" that being in those tax brackets with multiple sources of income itemizing would be in order but I guess not.

Rick

Maybe I should re-finance my house and take the equity out of it. Then I could itemize. Afew years back I could have re-finance at double what the house was worth plus another 25%. I could itemize then

Maybe a few years ago I could have bought some investment houses in Florida on loan since I have great credit then I could itemize..............and then now losing everything.

I paid for two kids 4 year education....cash. Could not deduct it back then.

Oh I might add that I did itemize for most of my life. Just can't get enough bills now. Close but not enough

[wnytaxman]

Greystroke, the way you had it worded made it sound like you were already in the 28% bracket which would have made your SS income taxable. What you described is a pretty common situation. Many times I'll have a client who is drawing SS get some additional income which seems minor at the time but then they get hit with a big tax bill becuaser of the taxability of their SS income.

I must admit that I am curious about the tax professional that you used. Were they a licensed professional or a "tax preparer" or one of the chains? Just curious.

[LadyFitz...]

Originally Posted by wnytaxman

For those of you who would want a flat tax, be careful what you wish for. Right now 75% of all taxes are paid by 5% of the poplulation. If we went to a flat tax, then who do you think would have to make up that difference? If you want to go to a flat tax system then you had better be ready to pay substantially more in taxes...

Several years ago, AZ proposed a 5% flat tax to replace the current income tax. Critics went on and on about how it would adversely affect the poor and middle class. I'm lower middle class. I crunched some numbers (poor numbers ) and found I, and anyone who made less than me, would actually save quite a bit over what were already paying and it would have been a lot simpler.

[Paul R. Haller]

I have read this entire thread and there are all kinds of theories on how to fix what's broken but not once in all these statements did anyone say that it's simply what our priorities are and where we, as a nation choose, to spend our resources.

Far and away the most expensive expenditure is our military and related spending on WAR. If we had chosen to prop up social security and give every American citizen free health care for life, it could have been done easily with trillions left over compared to what we spend on war. We, as a nation, spend more then any other country on defense and our ability to support a war effort. In fact, we spend more on war then the next 20 countries spent on the same endeavor combined. That's a lot of cash and it's all measured in tears, sorrow, and blood spilled. Had 1/2 of the 124 trillion been spent on social systems instead of war over the preceding 20 years we would be, by a very large margin, the richest nation in the world. It's not the police, or fire fighters, or teachers, or county workers, or baby boomers retiring to blame for our woes. It's simply that we choose to let people here at home suffer to support war.

Our president needs to say to people here that it costs a lot to wage war no matter the reasons and we simply can not afford it along with education, health care, social security, and medicare. We can not do it all. Voters must choose the decisions on where we put our resources. My bet is that if we had the choice, we would curb our spending on war and prop up social security.
-Paul R. Haller-

[greystroke]

Oh just looking at old tables.

99 married couple entered the 28 bracket at 43000

2010 married couple entered the 25 bracket at 68000 and the 28 bracket at 137300

So if the Bush tax cuts go away brace yourself. I believe the 10 and 25 will go away.