How to reduce taxes on SS income..

[AZ-Tax]

Got a prosect who has schedule C income net profit about $30K and spouse has a $60K W-2 salary. Sch C (taxpayer) will be drawing SS beginning Jan 2012 and continue with Sch C business. Spouse will continue W-2 wages thru 2012. Wants to minimize his taxes on his SS income. Came to me under the impression his Sch C needs to become a C-Corp or S-Corp. Told him I need to research it.

Am I missing something here?

[JG EA]

He wants to lower his wages from his business to $14,106 so his SS $ will not be taken away.

If it is tax avoidance the IRS would not like. SS doesn't care since they only go by the tax return for the individual and assume that if it is on the W-2 and the rest is investment income that the taxpayer is legal. So, the trick is to make sure that the actual return is legal.

For instance, does he operate a service business? Would the hours that he works be at a reasonable rate at 14+ when for all the years past it was at 30+? Would it have made sense to incorporate years ago and he's doing it now not just because of SS? Facts and circumstances in his favor? Can you justify it in an audit?

[Uncle Sam]

Reduce Taxes on SS income

Is your "prosect" under 65 or over 65?

C or S has nothing to do with collection of Social Security Benefits.

It's the earned income that matters (from the Schedule C) that determines
the future Social Security benefits and/or reduction of same due to over-earning
while collecting benefits.

If S Corp, he'll have to take a salary anyway that will effect Social Security benefits.

[dyne]

It has been reported that many tax preparers nearing retirement have incorporated their business as a Subchapter S corporation and thereafter reported their wages from the corporation as being much less than the profit they reported on schedule C in prior years. The result is that a smaller portion of their social security benefits are taxable. IRS is aware of this tactic and will be looking for it during audits.

[jimmcg]

It has been reported that many tax preparers nearing retirement have incorporated their business as a Subchapter S corporation and thereafter reported their wages from the corporation as being much less than the profit they reported on schedule C in prior years. The result is that a smaller portion of their social security benefits are taxable. IRS is aware of this tactic and will be looking for it during audits.

This is a perfectly legitament tax planning tactic as long as they take a "reasonable salary" from the copporation. Document the salary taken with comparable salaries in your area for this type of work. Went through two audits of this nature in the last three years and prevailed on both.

[Jiggers]

This is a perfectly legitament tax planning tactic as long as they take a "reasonable salary" from the copporation. Document the salary taken with comparable salaries in your area for this type of work. Went through two audits of this nature in the last three years and prevailed on both.

The problem is that their net schedule C was about $50,000 per year, and now they want a salary of $14,000 per year with the rest as a distribution. You might as well as put "Audit Me" on the S-Corporation return if you do this.

Social Security also looks at the financial statement of the S or C corporation, and your personal return, to make sure that you are not taking an abnormal amount out as rent or paying your spouse.

If you want to do this, start doing this for many years before you try to draw SS.

[FEDUKE404]

Playing loose with the numbers

The problem is that their net schedule C was about $50,000 per year, and now they want a salary of $14,000 per year with the rest as a distribution. You might as well as put "Audit Me" on the S-Corporation return if you do this.

Social Security also looks at the financial statement of the S or C corporation, and your personal return, to make sure that you are not taking an abnormal amount out as rent or paying your spouse.

If you want to do this, start doing this for many years before you try to draw SS.

I'm surprised the guy did not make his salary $14,159 !!

Such reminds me of the people who want to take a $499 non-cash contribution deduction on Schedule A??

FE

[ttbtaxes]

You need to examine the cost/benefit.

It seems hard to believe the benefit of tax savings of not paying tax on SS could outweigh the cost of forming a corporation plus the cost of unemployment insurance, payroll forms, corporate tax preparation, minutes, and, finally, the cost of dismantling the corporation.

It would be akin to hiring an attorney to take care of a $10 parking ticket.