Problem 4-56 (LO. 4) Charles E. Bennett, age 64, will retire next year and is tr
ID: 2531174 • Letter: P
Question
Problem 4-56 (LO. 4)
Charles E. Bennett, age 64, will retire next year and is trying to decide whether to begin collecting his Social Security benefits at that time. His monthly benefits will increase if he defers his starting date for the benefits. He has asked you to estimate how much his income tax will increase as a result of collecting Social Security. Charles and his wife Bernice B., file a joint return, have no other dependents, and claim the standard deduction. Their only income other than the Social Security benefits are:
The Social Security benefits for the year would be $12,000.
a. Complete Worksheet 1, Figuring Your Taxable Benefits, included in IRS Publication 915 to determine the taxable portion of this couple’s taxable Social Security benefits (the publication includes a blank worksheet).
If you are married filing separately and you lived apart from your spouse for all of 2016, enter "D" to the right of the word "benefits" on Form 1040, line 20a, or Form 1040A, line 14a.
Do not use this worksheet if you repaid benefits in 2016 and your total repayments (box 4 of Forms SSA-1099 and RRB-1099) were more than your gross benefits for 2016 (box 3 of Forms SSA-1099 and RRB-1099). None of your benefits are taxable for 2016. For more information, see Repayments More Than Gross Benefits.
If you are filing Form 8815, Exclusion of Interest From Series EE and I U.S. Savings Bonds Issued After 1989, do not include the amount from line 8a of Form 1040 or Form 1040A on line 3 of this worksheet. Instead, include the amount from Schedule B (Form 1040A or 1040), line 2.
Adoption benefits (Form 8839, line 28),
Foreign earned income or housing (Form 2555, lines 45 and 50, or Form 2555-EZ, line 18), and
Certain income of bona fide residents of American Samoa (Form 4563, line 15) or Puerto Rico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Married filing jointly, enter $32,000
Single, head of household, qualifying widow(er), or married filing separately and you lived apart from your spouse for all of 2016, enter $25,000 . . . . . . . . . . . . . . . . . . . . . . . . .
Interest and dividends $6,000 Taxable pension $40,000Explanation / Answer
computation of income Particulars With Social Security Without Social Security Interest and dividends 6,000 6,000 Taxable pension 40,000 40,000 Social Security benefits 12,000 - Total income 58,000 46,000 Deduction (12,700) ( 12,700) Total Taxable income 45,300 33,300 taxable portion of this couple’s Taxable Income Tax Brackets and Rates, 2018 (Slab - 0-18650)10% 1,865 1865 (Slab - 18650-75900)15% 3,998 2198 Total Tax 5,863 4063 so, total tax liability of Charles will increase by $1800 with the social security benefit.
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