What method may Joan use to determine the taxable portion of her lump-sum Social Security benefits?

The method Joan may use to determine the taxable portion of her lump-sum Social Security benefits involves analyzing whether any part of the payment is taxable based on her income in earlier years. This is crucial because the taxation of Social Security benefits is not determined solely on the amount received in the current year but rather is influenced by the taxpayer's overall income level.

For individuals or couples whose modified adjusted gross income exceeds certain thresholds, a portion of their Social Security benefits may indeed be taxable. Therefore, looking at the income from prior years helps ascertain if her current benefits are subject to tax due to having exceeded those income thresholds previously.

Understanding this context allows Joan to accurately engage with the specifics of Social Security taxation rules, ensuring she aligns with IRS guidelines. By assessing her income from previous tax years, she can determine the percentage of her benefits that may be taxable, reflecting the correct approach to accounting for such income on her tax return.