How to Estimate Taxes for Retirement

B&J Bookkeeping and Taxes helps prepare taxes for individuals, married couples, and small to mid sized business owners at all stages of life. Like most of us, you plan on retiring some day and may even have that day selected. However, you should know that taxes will still be a factor. Below, we will show you how to estimate taxes for retirement.

Taxes on Retirement Income

Your sources of income will change after retirement. Unfortunately, most to all sources of retirement income will be taxable including:

Social Security – Yes, you paid Social Security as a tax. Since taxes never end, they will also be deducted from when it is time to collect. The total tax rate on your benefits may be anywhere from 15% to 45%.
Retirement funds – Did you scrimp and save for your retirement? Certain retirement funds are taxable when you withdraw from them including IRAs and 401(k)s.
Income from Investments – Investments made in the stock market or similar areas that is withdrawn is also taxed and is generally reported on a 1099 form.
Pensions – Many public and private companies offer their workers pension income when they retire. This pension income is taxable in most cases.
Annuity Distribution – Large settlements from lawsuits, inheritances, trust funds, and other sources may be considered annuity. Those of you who use this income in retirement may be taxed on it depending on the type.

State Taxes on Retirement Income

In addition to the federal taxes for retirement above, you may also be looking at state taxes. Some states are friendly to the retired and have no state income tax, no tax on retirement income, and low taxes on property, sales, estates, etc. These states include Florida, Georgia, Nevada, and other states famous for numerous retirees. Here in Texas, we do not tax income from Social Security and also offer deductions on retirement income. However, some states have no benefits for retirees in general and have high living taxes such as in sales, property, and others. These Staes include California, Connecticut, Rhode Island, and Vermont.

Plan Your Income and Retirement

Retirement income, taxes, and how to live decently on it all depends on where you live, if you own your own home, sources of income, expenses, and of course, taxes. Currently, it is recommended to have approximately $36,000 per year in income for each individual retiree. Of course that number changes depending on number of retirees, dependents, and other factors. Additionally, this number will change as the years pass. Ever-changing inflation and tax rates will also be a factor. However, you can use a tool like this extensive retirement calculator from Smart Asset to give you a general idea.

Don’t forget you will still need to file a tax return in most cases after you retire. We highly recommend you use an experienced tax preparation specialist in your area to ensure you take every credit and deduction due to you.