Your Money: Raising credit scores and tax issues













–Candice Choi



A: Well, I hate to tell you this, but you did pay taxes on the money that was withheld from your paycheck for Social Security. Unfortunately, the way the system works, you're paying taxes on it again.

Social Security benefits were first taxed as the result of a bill signed into law by President Ronald Reagan in 1983. The bill was the result of recommendations of a special commission created to explore ways to ensure the long-term solvency of the program.

The IRS says a Social Security recipient and spouse filing a joint return must combine incomes and benefits to figure whether any of the combined benefits are taxable.

If the combined income exceeds $32,000, the base amount established for 2008, you would owe taxes.


Many tax advisers say you may be able to eliminate the tax on Social Security by reducing income from dividends, interest on investments like certificates of deposit, and tax exempt interest income (from state and municipal bonds, for example). If you can lower your income below the combined income threshold, you won't have to pay the tax.

For more guidance, visit the Social Security Administration tax page: .

–David Pitt –––––––––––––

Q. In the past, the IRS allowed people to give gifts of up to $10,000 a year tax free. Is it true that this limit has gone up? By how much? Are there any limits to how many you people can give to? -- Connie Perlman, Henderson, Nev.

A. The law allows taxpayers to give individuals an unlimited number of tax-free gifts of cash or property valued up to $12,000 each for 2008, and rising to $13,000 for 2009, according to Laurence Foster, a certified public accountant in New York. There is no limit for gifts to a spouse, he said.

For gifts above the limit, the first $12,000 is tax free and the remainder is taxable. An exception is if the gift is split by a married couple filing a joint return, in which case each spouse can make a $12,000 gift, for a total of $24,000 to each recipient. Split gifts must be reported on tax form 709.

Gifts under the $12,000 limit do not have to be reported.

For gifts of property like stock, the value of the gift is determined from the date it was made, not when tax returns are prepared.

If a portion of a gift is taxable, that tax is paid by the giver, not the recipient. Everyone is entitled to a $1 million lifetime exemption for gifts. If taxable gifts are made, the amount of tax owed can be deducted from that credit.

–Eileen AJ Connelly