As we get older, our itemized deductions and dependent exemptions begin to phase out. As our children get older and our mortgages get paid off, older Americans may find themselves paying more taxes. Good tax and financial planning can help reduce the tax burden placed upon older taxpayers.

Generally, Social Security benefits alone are usually excluded from Federal Income Tax and are not subject to Pennsylvania State Income Tax. However, depending on additional income you may have in combination with your Social Security income, some or all of it may be taxable.

If you received Social Security benefits in 2009, you need to know whether or not these benefits are taxable. Here are seven facts the Internal Revenue Service wants you to know about Social Security benefits so you can determine whether or not they are taxable to you.

1. How much – if any – of your Social Security benefits is taxable depends on your total income and marital status.
2. Generally, if Social Security benefits were your only income for 2009, your benefits are not taxable and you probably do not need to file a Federal income tax return.
3. If you received income from other sources, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status.

4. Your taxable benefits and modified adjusted gross income are figured on a worksheet in the Form 1040A or Form 1040 Instruction booklet.
   
5. You can do the following quick computation to determine whether some of your benefits may be taxable: First, add one half of the total Social Security benefits you received to all your other income, including any tax exempt interest and other exclusions from income. Then, compare this total to the base amount for your filing status. If the total is more than your base amount, some of your benefits may be taxable.
6. The 2009 base amounts are:
   • $32,000 for married couples filing jointly.
   • $25,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouses at any time during the year.
   • $0 for married persons filing separately who lived together during the year.

Depending upon your circumstances generally married taxpayers that live together will be penalized if they choose the option of Married filing Separately compared to Married Filing Jointly. Also, prior to retiring, it is recommended that taxpayers consult with their Tax Preparer to structure a system for planned withdrawals of retirement funds and lump sum distributions. Many taxpayers may benefit from delaying lump sum distributions until the year after they retire.

Alan Katz