Broken Promises for Seniors? No Problem…

It's Thursday! Let's talk TAXES… 

Many seniors receive monthly Social Security in the US. People owe tax on their SS benefits depending on their provisional income (PI). PI is the sum of the following:

1. tax-exempt interest

2. 50% of Social Security benefits, and

3. other income items from adjusted gross income (AGI)

For joint filers whose PI exceeds $44,000 ($34k for singles), up to 85% of social security benefits are taxed. Most senior clients at Next Pronto are in this cohort.

President Trump had promised to make social security benefits fully tax-free in 2025, but the OBBB (tax reform) didn’t allow for this change. As a consolation prize for this broken promise, the federal government is offering an extra $12,000 tax deduction for senior married couples ($6k for singles). You don’t even need to receive Social Security benefits to take the senior deduction. However, it fully phases-out when joint filers’ AGI reaches $250,000 ($175k for singles).

We've identified another consolation prize -- this one for home-ownerswho are crumbling under an affordability crisis. The Trump administration is considering allowing homeowners to take depreciation deductions on their homes -- even if NO PART of the home is used for rental or business purposes. Potential home buyers will need to stay put because the plan is conceptual and lacking details for now. One future disadvantage of this tax benefit is that depreciation write-offs will reduce the home’s tax basis, which means homeowners will have a higher taxable gain when they sell and move-out.

For pet lovers out there, please note that the IRS does not consider your pet iguana or house cat to be your "dependents”. However, there are 4 consolation scenarios where your furry friends’ expenses can actually reduce your taxable income.

1. Certified service animals –trained to assist you with a diagnosed physical or mental disability;

2. Business working animals -- guard dogs protecting your warehouse or cats controlling for pests at a storage facility;

3. Income-generating pets -- working as a influencers (i.e. social media), in a show or as a breeding animal;

4. Foster pets -- foster animals for a qualified nonprofit animal shelter or rescue.

Happy Thursday and keep those tax questions coming!

Mauro L.