September/October 2021 Tax Tips

Understanding the impact of earnings on Social Security benefits

You can start collecting Social Security benefits as early as age 62. But if you’re still working, be sure you understand how earnings can reduce these benefits.

For example, say you begin collecting Social Security at age 62 but continue to work. Your Social Security payments will be reduced by $1 for every $2 of earnings over a specified threshold (currently, $18,960). If your Social Security benefit is $24,000 per year, for example, then earnings of $66,960 or more will reduce your benefit to zero.

In the year you reach full retirement age (for those born in 1955, age 66 and two months, with the age increasing two months per year for those born in 1956 through 1959, until it reaches 67 for those born after 1959), the impact of earnings is much less severe. Benefits are reduced by $1 for every $3 of earnings over a higher limit (currently, $50,520) up to the date of your full retirement age. When you reach full retirement age, you’re eligible to receive your full Social Security Benefit regardless of the amount you earn from work.

Note that if your benefits are reduced, they aren’t lost forever. When you reach full retirement age, they’ll be returned to you in the form of higher Social Security payments.

Consider a “reverse” sales and use tax audit

If your business purchases raw materials, supplies or other items in multiple states, consider conducting a “reverse” sales and use tax audit. Ordinarily, sales and use tax audits are conducted by state or local governments to reveal taxes that weren’t properly collected and paid. In a reverse audit, a business seeks to identify and recover overpayments of sale and use tax.

Most states exempt certain purchases from sales and use tax — such as goods purchased for resale or materials consumed in a manufacturing process. The rules surrounding these exemptions vary from state to state and may change over time, so compliance can be a challenge. Because it’s usually up to the purchaser to claim an exemption, it’s not unusual for businesses to erroneously pay sales or use tax on exempt purchases. A reverse audit can help a business identify and correct these mistakes, boosting its cash flow in the process.

Is now the time for a home solar energy system?

Recent legislation delayed the phaseout of solar energy tax breaks, so now may be a good time to consider investing in a system for your home. Currently, a 26% tax credit is available for qualifying residential solar property, dropping to 22% after 2022 and expiring after 2023. For purposes of the credit, the expenditure is deemed to have been made when installation is completed or, in the case of expenditures in connection with a construction or reconstruction project, when the taxpayer’s original use of the structure begins.

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