Can I invest Social Security?

Question

My wife and I are retired and will receive around 56,400 gross from Social Security in 2023 before Medicare is deducted. In 2023 I will be receiving a check from my previous employer for 64,000 from an employee stock ownership plan which I will be cashing for home improvements. Will I have to pay income taxes on this? If so, can I invest some of the money in an account to lower the amount? Thank You.

AlexO · Answer

https://community.freetaxusa.com/discussion/comment/334#Comment_334

Jamouski,

Thank you for the additional information! The basis of employer stock would be the price you paid for the shares plus any compensation included in income and taxed in a prior year. Thus, you may need to refer to prior year W-2 forms to determine if the value of the shares given to you were included in your income. If not and you did not pay any amount to purchase the shares, the basis may be $0.

If you qualify, you may be able to make deductible IRA or HSA contributions to help lower the amount. More on IRA & HSA contributions can be found at the links below:

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits

https://www.irs.gov/pub/irs-pdf/i8889.pdf

— page 4

If you use the amount on home improvements, the improvement will increase the cost basis of your home, which decreases the gain realized when you sell the home. If the improvements are energy efficient, they may qualify for a credit. You can find improvements that would qualify at the link below:

https://www.irs.gov/credits-deductions/home-energy-tax-credits

Jamouski · Answer

https://community.freetaxusa.com/discussion/comment/333#Comment_333

The 64,000 is stock was part of an Employee sponsored stock ownership, Profit sharing plan. The stock is being sold back to the company for its current value. I have never invested my own money in it.

Thanks

kiarab · Answer

Hello,

It depends. What is the cost basis of your stocks that you are selling? If you end up selling them at a loss, then you might not need to worry about it at all. You are only taxed on the gain. For example, you sold it for 64,000 but let's say your cost basis is about 65,000. You would then have a 1,000 loss and wouldn't be taxed on the 64,000.

Also, if you sold it for a gain, say your cost basis was 60,000. Then you would only be taxed on the 4,000 gain. And that gain would be included as part of your taxable income. So the first step would be to figure out how much of your 64,000 is taxable. (This still might be at a 0% rate, we just need to know the gain)

Next, you need to figure how much of your benefits are taxable. You can fill out the worksheet here on page 16 ( IRS Publication 915) or our 2023 software has recently been released and you can start to fill out your 2023 return now and have the software calculate that for you.

Then once you have figured that out, you can see how much you may owe in capital gain tax. Right now, for married filing jointly, if your total taxable income is less than 83,350 (

https://www.irs.gov/taxtopics/tc409

), then it's likely that most of it, if not all, will be taxed at a 0% rate.