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Flipping Spouses SE Tax

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    Flipping Spouses SE Tax

    Tried earlier to post on a different computer. Either computer lost contact, or thread was deleted because someone made an inappropriate comment. At any rate, the question is very relevant (even if elementary), so I will pose it again.

    John began working as a self-employed contractor when he was a young man. He made a good living, and his wife Sue chose to be a stay-at-home mom and become the focal parent for raising the family.

    John has been filing a Sch C and SE for 30+ years, and is now 57 years old and plans to work 10-12 more years if health permits. However, Sue is also in late 50s and has never paid in a dime to Social Security. She now wants to pay in some FICA to enhance the amounts she can draw when she applies.

    Sue has never been an integral part of John's business activities, other than occasionally answer the phone and help with paperwork.

    Most tax software packages will allow the Sch C (and SE) to "flip" to the other spouse, thus Sue's request can be easily accommodated. However, is this proper and ethical for a preparer to do?

    #2
    Dubious, I'd say.

    She'll get a significant SS spousal benefit. If she wants her own, why doesn't he hire her, give her more work to do, and pay her a fair salary?
    Evan Appelman, EA

    Comment


      #3
      You can't report his earnings as hers.

      She needs to report earnings for 10 years to qualify on her own. And it would most likely not be as much as one half of his benefit.

      If you were to reduce his earnings by reporting them to her you may reduce his benefit and hers.

      One caveat. If she had her 40 quarters she could draw at 62 on her account and switch to his account at full retirement age.

      Hopefully your client is fully funding IRAs for the both of them.

      Comment


        #4
        Fully fund an IRA???!!!

        Originally posted by veritas View Post
        She needs to report earnings for 10 years to qualify on her own. And it would most likely not be as much as one half of his benefit.

        If you were to reduce his earnings by reporting them to her you may reduce his benefit and hers.

        One caveat. If she had her 40 quarters she could draw at 62 on her account and switch to his account at full retirement age.

        Hopefully your client is fully funding IRAs for the both of them.
        Why would I do that, I've got the gubment to give me SS and Medicare and then I'll just moan and complain when I don't get a raise! Why should I be responsible for myself?!

        Comment


          #5
          Originally posted by Snaggletooth View Post
          Sue has never been an integral part of John's business activities, other than occasionally answer the phone and help with paperwork.

          Most tax software packages will allow the Sch C (and SE) to "flip" to the other spouse, thus Sue's request can be easily accommodated. However, is this proper and ethical for a preparer to do?
          Just addressing this last question and not if it even makes sense to have her pay in SS.

          SS follows the same substance over reporting rules as the IRS does. Meaning that if they became aware that she actually did not work, they would deny her benefits. How would they ever know? Maybe down the road (right when she turns 62) her husband hates her and he regrets having paid in for her.

          Comment


            #6
            Not ethical or legal

            You can't flip the income to her as she did not earn it.

            Comment


              #7
              Originally posted by Kram BergGold View Post
              You can't flip the income to her as she did not earn it.
              If there is a local business license,or bank account you better get them in her name too. Some IRS auditors are looking at business licenses and bank account owners to verify that they are in the name of person claiming the business. And guess what happens if they get caught!

              Comment


                #8
                Another alternative

                If they're serious about this, have her undertake enough of the workload to be legitimately regarded (going forward) as a co-owner of the enterprise. Then, treat it as a "disregarded entity" and split it between two Schedule C's and SE's.
                Evan Appelman, EA

                Comment


                  #9
                  Several years after my father retired my mom found out that she could get SS benefits through what he paid in. I called the SSA and they said she could. So I filled out some paperwork for her and she started getting SS checks.

                  Not sure this would work in this situation though since the husband is younger than the wife.

                  Comment


                    #10
                    No point in doing this as she can draw half of the husbands benefit and if you did flip the income to her then you would be reducing the amount he draws. Need to leave everything as is and let her draw off the husband when it's time to draw SS.

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