There’s no arguing that taxes on social security are incredibly high. As a matter of fact, according to current tax law, up to 85 percent of a person’s Social Security income is taxable when their total threshold income exceeds a set limit. What is threshold income?

Threshold income is the government’s formula for determining how much of a person’s Social Security is taxable. It is calculated by adding half of a person’s Social Security income with any other income they may have. The following threshold limits determine how much of a person’s Social Security is taxable:

• A single person with $25,000 to $34,000 in threshold income: 50 percent of Social Security is taxable.

• A single person with more than $34,000 in threshold income: 85 percent of Social Security is taxable.

• A married couple with $32,000 to $44,000 in threshold income: 50 percent of Social Security is taxable.

• A married couple with more than $44,000 in threshold income: 85 percent of Social Security is taxable.

Although it may seem inevitable that you’ll be forced to pay these steep taxes, there are ways to reduce or even avoid them altogether.

Fixed annuities: The perfect tax reduction solution. If you’re retired, you may be drawing income from interest-producing assets such as CDs and taxable bonds. However, if you don’t need this income for daily living expenses, you should consider transferring the funds to a fixed annuity.

Why? First of all, fixed annuities offer tax-deferred interest. Additionally, fixed annuities are the only interest-producing assets that the government does not include in their threshold income calculations – which means investing your money in a fixed annuity actually helps to lower your threshold income. As a result, you’ll be able to decrease or even eliminate income tax on your Social Security income.

Based on current tax law, the IRS includes the following sources of income when calculating your

threshold income:

• Pension
• Mortgage income
• US Treasuries
• CDs
• Money Market Accounts
• Passbook savings
• Credit Union savings
• Dividends from stocks
• Dividends from mutual funds
• Capital gains
• Municipal bonds
• Annuity withdrawals

As you can see, fixed annuities are not included in this list of assets, which is a huge advantage over these other investment vehicles.

Whether you want to ensure you’ll have enough income to last you through the years or you’re looking for a way to reduce taxes on your Social Security income, a fixed annuity may be the ideal investment solution for you.