What No One Tells You about Social Security Benefits while Filing Taxes

What No One Tells You about Social Security Benefits while Filing Taxes

The system of receiving Social Security Benefits while Filing Taxes was introduced way back in 1935 when the then President, Franklin Roosevelt, signed the Social Security Act. The current regulations governing Social Security Benefits have been through various amendments since their inception. Currently, under the Social Security Benefits, four different types of benefits are paid. These include retirement benefits, disability benefits, dependents benefits and survivor's benefits.

Though you might know that your Social Security Benefits depend on your level of income and for how long you have worked, there are some facts about such benefits which you might not know. Given below are some common facts which no one tells you about your Social Security Benefits:

Social Security Benefits while Filing Taxes

• The 'full retirement age' depends on the year of your birth
  
  While you might know that receiving your Social Security Benefits are more rewarding from or after you reach your full retirement age, do you know the actual full retirement age. While most of us consider 66 to be the full retirement age, the fact is that the actual age depends on the year we are born. If you are born in 1938 or earlier, your full retirement age is 65 years. If you are born between 1943 and 1954, your full retirement age would be 66 years and if you are born after 1960, the full retirement age is actually 67 years. Did you know this?


• Getting benefits after divorce
  
  If you are divorced from your spouse and want to lay a claim to spousal benefits of your ex-spouse, you have to fulfill three important criteria. One, you should remain unmarried for claiming the benefit. Two, your marriage should have lasted for at least 10 years. Three, your spouse should be retired or disabled. However, if you and your spouse are above 62 years of age and have been divorced for more than 2 years, you can start receiving spousal benefits even if your working spouse has not opted for the same.


• The Social Security Benefits are calculated on your average 35-year income
  
  Though the computation of Social Security Benefits varies as per different situations, one thing is constant. The number of years taken for your aggregate earnings is 35 years. If you have worked for more than 35 years, the highest earning years are considered in the calculation. However, if you have worked for less than 35 years, 'zero' value is taken for such years when your income was nil. This, therefore, reduces the value of the benefits you can receive.


• The difference between spousal and survivor benefits
  
  You get spousal benefits being married or being divorced. In either case, your spouse should be alive. However, if your spouse dies, you get survivor benefits. Spousal benefit is 50% of the Social Security Benefit which your spouse is entitled too while survivor benefit is 100% of that amount. When claiming either benefit, you can get only one– either yours or your spouse's. In case of spousal benefit, if your benefit is more than 50% of your spouse's benefit, you would get the higher amount, i.e. your benefit. The same holds true in the opposite scenario where you would get your spousal benefit. In short, when claiming spousal benefits, you can claim only one benefit and let go of the other. In survivor benefit, though, you can collect your survivor benefit and let your own benefit to grow. If you collect your own benefit after 70 years, you can avail of higher payments.


• Spousal and survivor benefits do not increase after the full retirement age
  
  Though you can increase your Social Security Benefit if you delay receiving it post your full retirement age, no increment is available in case of spousal or survivor benefit. Did you know these things about Social Security Benefits? I bet you didn't. Wise men say that knowledge is power and they are not wrong. You should learn the nutty-gritties of Social Security Benefits too so that you can avail the maximum possible benefits.

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Social Security Benefits, Filing Taxes, Tax Filing, Tax Services, Tax Consulting, Tax Filing Services, Tax Preparation, Tax Representation, 

Choosing a Tax Accounting Services

Choosing a Tax Accounting Services

Do you know that accounting method actually used on the initial return is an election of that method, so tax payers should carefully analyze financial data to ensure that the method is applied properly.

A business must use the same accounting method to figure its taxable income and to keep its books, and the method must clearly reflect its income.

Understanding Accounting Methods

An accounting method is a set of rules used to determine when income and expenses are reported on your tax return. In general, there are four types of accounting methods, which dictate how business transactions are recorded in the business financial books:

• Cash Method – income is recognized in the year received, and expenses in the year paid.
• Accrual Method – Income reported in year it is earned and deduct or capitalize expense in the year incurred.
• Special Method – This method of accounting is for certain item of income or expenses and it’s include for Amortization, Bad Debts, Depletion, Depreciation, Installment Sales.
• Hybrid Method – Any combination of two or more above methods of accounting methods, if the combination clearly reflects business income and use it consistently.

Why Method Matters

The accounting method a business uses can have a major impact on total revenue the business reports as well as on expenses that it subtracts from revenue to get the bottom line.

The core underlying difference between these two methods is the timing of transaction recordation. The timing difference between the two methods occurs because revenue recognition is delayed under the cash method until payments arrives in the business.

Similarly, the recognition of expenses under the cash basis can be delayed until such time as invoice paid.

BASIS FOR COMPARISON	CASH ACCOUNTING	ACCRUAL ACCOUNTING
Meaning	The accounting method in which the income or expense is recognized only when there is actual inflow or outflow of cash.	The accounting method in which the income or expense is recognized on mercantile basis.
Nature	Simple	Complex
Applicability of matching concept	No	Yes
Recognition of revenue	Cash is received	Revenue is earned
Recognition of expense	Cash is paid	Expense is incurred
Degree of Accuracy	Low	Comparatively high

Changing your accounting method

Generally, you can use any permitted accounting method when you file your first tax return and you don’t need any IRS approval for the first time. However, you have to use the selected method consistently from year to year and it must clearly reflect your income.

Any business that wants to change its accounting method, need to take permission from IRS for change in accounting method by using Form 3115 to request a change.

A change in your accounting method includes a change not only in your overall system of accounting by also in the treatment of any material item. A material item is one that affects your income or your ability to take a deduction.

Timing and application process: Applications can be made at any time during the tax year, but the earlier the better. You may also get a six month of extension to file the application so long as your tax return for the year in which the change is requested is filed on time.

The IRS looks at two things when deciding whether or not to approve a request for a change in accounting methods:

• Whether the new method will accurately reflect income
• Whether the new method will create or shift profits and losses between businesses.

For any further assistance regarding Bookkeeping feel free to contact us at  bopmanagers@aotax.com or Phone: 703-584-5533We will be very happy to assist you.