What is the best strategy to lower the tax impact of a SSDI Lump Sum? Are there circumstances where I would be better off filing an amended return for 2017?

[weinrebls]

In 2018 my wife started receiving SSDI. She received a lump sum of which about 2/3 was for 2016 and 2017. Because of my income most of the payment is taxable. I did enter the year's separately in Turbo Tax. However, I am not sure what the ultimate tax impact is of the fact that a portion of the lump sum was for years prior to 2018.

[fanfare · Accepted solution]

you have two options in this situation

1.  the way turbotax did it
2.  apply all the payment to 2018

you can file the way that gives the better results.

to apply option 2 enter that the entire amount was for 2018 benefits.

[fanfare]

[]

[weinrebls]

Thank you, will turbo tax automatically do this calculation for you and pick the best one or do I need to manually check both ways and see what provides the best result?

[fanfare]

that's a good question I don't know the answer to, But i haven't seen it give a message that Opt 2 is applied.
according to your original post you already did the Opt 1 approach. make a note of the results.
It's easy to do multiple returns in CD/Download version

[fanfare]

some people don't have their old tax returns and can't answer the questions.
As I recall, TurboTax didn't offer Option 2 directly.
maybe it's better now.

[weinrebls]

Agree, it's easy enough to just make a copy of the return and make the adjustment. The IRS has a worksheet and I'm going to use old fashioned pen to paper to check what TurboTax is coming up with. I'll post a comment with my findings.

[weinrebls]

So I went ahead and put the Worksheets from IRS Publication 915 that takes you through both methods into Excel. I did all of the inputs and then went back and looked at what TurboTax was doing. TurboTax had worksheets that aligned exactly with the IRS worksheets including both methods. I can't say for 100% certain because In my specific circumstances both answers were the same but based on the fact that TurboTax has the full setup to develop the amount both ways I would expect that they are doing the comparison and would be selecting the better option. I'm impressed!!

Note: The second method is called the "lump sum" method and as per the IRS instructions if you use this method you are supposed to enter "LSE" to the left of Form 1040 Line 5a

Fanfare - thank you again for taking the time to answer and putting me on the right track!!

[CynthiaR]

Your wife received a 1099 SSA from Social Security Administration for 2018.  The amount that is showing in Box 5 is the amount that has to be reported on the tax return regardless the year it was for.   You cannot amend 2016 and 2017 return for that because she did not receive it until 2018.