Age65 wants to start S-Corp bus & protect SS

[AZ-Tax]

First time I got this question. Age 65 TP wants to have an S-Corp for his business and pay himself a salary of approx $14K (he tells me that is the majic amt for which he does not pay taxes on his SS) from the S-Corp and the rest he will take in distributions. I ran a hypo MFJ tax return $20K SS and $20K w-2 wage. No SS taxed. I entered $10K of Sch E net income then part of his SS got taxed. Is it possible this guy is talking a C Corp vs an S-Corp?

[Jiggers]

Confused

I think he is confusing apples with organges.

He wants to draw a small salary, such as the SS maximum of $14,000. He has SS withheld, along with medicare. The balance of the S-Corporation profits he withdraws and pays just ordinary tax, no SS withheld, nor medicare.

If his paycheck from the S-Corporation was the net profit, he would have SS and medicare withheld on the total amount.

Big difference.

But an audit flag.

As far as his SS being taxable, depends on other income.

Ask him if he got this information from his barber or yardman or auto mechanic.

[JohnH]

This is clearly barber advice. Lawn care providers and auto mechanics are much better versed on the fine points of S-Corps. He should consult one of them before making any final decisions.

[Burke]

First time I got this question. Age 65 TP wants to have an S-Corp for his business and pay himself a salary of approx $14K (he tells me that is the majic amt for which he does not pay taxes on his SS) from the S-Corp and the rest he will take in distributions. I ran a hypo MFJ tax return $20K SS and $20K w-2 wage. No SS taxed. I entered $10K of Sch E net income then part of his SS got taxed. Is it possible this guy is talking a C Corp vs an S-Corp?

He is definitely confused. $14,160 is the "magic amt" which he can earn as wages, and not have to pay some of his Social Security benefits back to SSA should he be drawing them, as he is not yet at full retirement age (66 or 67, depending on his age.) It has nothing to do with whether it is taxed or not.

[jimenright]

Any income from the S-corp

would be included in the calculation to determine taxable social security income. See the worsheet line 3) in TTB pg 16-3.

[LCP]

He said "protect SS"

Could it be that the taxpayer is not collecting yet and he wants to make sure that the low wages for the year don't reduce his benefit?

[taxxcpa]

Two birds, one stone

He could kill two birds with one stone with the S-Corp. He could keep his :"earned" income down to a level that would prevent losing part of his SS due to earnings and also avoid some self-employment tax.

Tax or no tax on 50%, or 85% of SS is a third aspect which would depend on total income including dividends, interest, etc. as well as income from the S Corp.

[JON]

My barber's

financial advisor wanted him to gift his stock in his S Corp to his wife, right away. He is 58 and then when he reached 62 have his salary down below the SS payback level and start drawing SS early. The wife is 10 years younger and would take all the distributions.

I told him probably anything works if your never questioned, but the people who work for the goverrnent and social secuirty have seen everything and are not dummies. If audited I never want my chances to be counting on I have a real dumb auditor.

I think the changes to social security are coming. They thought it was going to cash flow until 2016, that was last summer. January 2011, they anoununce SS will be operating at a deficit beginning this year. Guess what all the boomers have not even gotten there yet. There will be means testing, decreases in benefits and increases in taxes sooner not later. We let them operate this and now we pay for it. There is some hidden justice in that, maybe.

[kpangelinan]

funny

This is clearly barber advice. Lawn care providers and auto mechanics are much better versed on the fine points of S-Corps. He should consult one of them before making any final decisions.

Now that's funny!

[Davc]

SS tends to be aggressive in this sort of situation. I know a couple that tried that type of thing and the SS calculated his benefits using his previous wages and ownership % of current distributable net income.