In the current economy, everyone would like to reduce the taxes they have to pay to the bare minimum. But this is especially true of those retirees who are on fixed incomes. Here are the steps to go about reducing taxes on Social Security income.
Determine if you need to be concerned about the issue. If your total income (including Social Security) when you file jointly is less than $32,000, or if you file singly with less than $25,000, you will pay no tax at all on your Social Security income (see "Resources").
Move any taxable corporate stock, bonds, CDs or other liquid assets to a tax deferred fixed annuity (a deferred fixed annuity is a instrument between a person and his insurance company). Since this income is therefore no longer counted against you this tax season, it may help reduce your income sufficiently that your Social Security is not taxed.
Sell some of your liquid investments, and then repurchase them later as either a traditional IRA or as a Roth IRA, depending on your circumstances.
Repurchase your liquid investments in a traditional IRA, which is taxable upon your retirement, if you think you might at that time be in a lower tax bracket than you are while your are still employed.
Repurchase your liquid investments in a Roth IRA if you think your income will actually be higher when you retire, since the interest of a Roth IRA can be withdrawn after 5 years without tax penalty, and the principle can be withdrawn at any time without tax penalty.
Daniel Ketchum holds a Bachelor of Arts from East Carolina University where he also attended graduate school. Later, he taught history and humanities. Ketchum is experienced in 2D and 3D graphic programs, including Photoshop, Poser and Hexagon and primarily writes on these topics. He is a contributor to sites like Renderosity and Animotions.