Bumping up against (early) Social Security earning limit as a (P/T) self-employed individual living abroad.

[EMAC1]

This is my first year receiving social security benefits over a 12 months. I signed up for benefits early, at age 62, and am now 63. Last year my net earnings were under the limit, but this year I am concerned that I may be over the limit by a few thousand Dollars. Up until now I have been deducting my home office, for example, but I have been living out of the country (on a tourist visa, not as a resident), and my official home address in Texas is shared with a family member who also works from home. Here are my questions:

1) Since I won't be able to claim the home office deduction, what are some other ways to lower my net earnings as a self-employed person working part-time? Roth IRA contributions?

2) Will my self-employment earnings make my social security income taxable?

3) If my earnings exceed the social security limit, are future payments adjusted beginning in 2024, or how does that work? I only file taxes once a year, including my business taxes as a sole propietor.

Any strategies you can suggest are REALLY appreciated! 

[KochuK]

Hi EMAC1.

Thanks for posting an event questions.

1) Please review Schedule C instructions 2023 for more deductible business expenses.

https://www.irs.gov/pub/irs-dft/i1040sc--dft.pdf 

You can also consider retirement plan for self employed, such as SEP IRA. For 2023, 20% for self employed only or max amount of 66,000.

https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-seps 

2) your self employment income could impact Social Security income to be partially taxable up to 85%. Page 16 of IRS Pub 915 has a Worksheet 1. Figure Your Taxable Benefits.

 https://www.irs.gov/pub/irs-pdf/p915.pdf 

3) While you took early retirement in Social Security, before you reach full retirement age, the annual earning limit is $21,240.  Any $2 in excess of $21,240 will reduce $1 of your Social Security benefit for 2024. 

https://www.ssa.gov/benefits/retirement/planner/whileworking.html 

Hope the above helps. Thank you.

[TaxandtheCurious · Accepted solution]

Congratulations on receiving social security!

In response to your questions:

#1 and #2) Yes, your self-employment earning could impact whether or not your social security benefits are taxable. Since you are losing the home office deduction, there are other business deductions that you may be eligible to deduct, as well as, any health care premiums and retirement account contribution.  Although contributing to a ROTH will not lower your net earnings, you may want to consider other retirement account contributions, such as, to an IRA, SEP, Solo 401k, etc. 

I am providing you with some additional resources regarding business deductions and comparing types of retirement contributions:

• Top Write offs for Self-Employed: https://turbotax.intuit.com/tax-tips/self-employment-taxes/top-tax-write-offs-for-the-self-employed/... 
• Comparing Retirement accounts: https://turbotax.intuit.com/tax-tips/retirement/tax-benefits-of-retirement-accounts-comparing-401ks-... 
• What to know about SEP IRAs as a Self-Employed person: https://blog.turbotax.intuit.com/self-employed/self-employed-heres-everything-you-need-to-know-about... 

#3) The Social Security cost-of-living adjustment (COLA) for 2024 is 3.2%. These increases are automatic. The Social Security Administration calculates the annual COLA in October, and you'll see the increase in your payments starting the following January. So, your 2024 Social Security amounts that you receive will be higher than 2023. Social security also adjusts the income thresholds governing taxable amounts.  For 2023, the thresholds are: 

- You will pay tax on only 85 percent of your Social Security benefits, based on Internal Revenue Service (IRS) rules. If you:

• file a federal tax return as an "individual" and your combined income* is
  • between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
  • more than $34,000, up to 85 percent of your benefits may be taxable.
• file a joint return, and you and your spouse have a combined income* that is
  • between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits.
  • more than $44,000, up to 85 percent of your benefits may be taxable.

Here is the link to Social Security: https://www.ssa.gov/benefits/retirement/planner/taxes.html