Maximizing Social Security Benefits

[equinecpa]

I'm curious..I'm filing a joint return for a husband/wife in community property state who are self employed, same business. I was wondering if there is "strategy" of income allocation to maximize ss benefits.

Eg. Combined SE income: $50000

Would it be better to allocate most or all to one spouse to maximize that spouses future benefits? And then the other spouse could draw at least 50% of their spouse come retirement? Or should I at least give the 2nd spouse enough to earn 4 credits? Neither has other income subject to SS taxes, both are young enough that this could make a difference over the long haul. I'm thinking this would be better than splitting equally

Thoughts?

Carolyn

[taxmandan]

You want both to have the minimum 4 good quarters for the disability benefit. Beyond that, it's difficult to know which way to go, do either plan to get another job in the future? Is there a significant age difference and/or life expectancy that might tip the scales to one or the other? Hard to say if there is a realistic way to determine which way would ultimately work best, IMHO.

[joanmcq]

If it's a community property state, and they both work the business as a joint venture, you have no choice but 50/50.

[David1980]

50/50 isn't required in community property states.

SE tax isn't allocated any different in a community property state. The community property laws don't affect the SE tax portion.

"Sole proprietorship. With regard to net income from a trade or business (other than a partnership) that is com-munity income, self-employment tax is imposed on the spouse carrying on the trade or business.

"Partnerships. All of the distributive share of a married partner's income or loss from a partnership trade or busi-ness is attributable to the partner for computing any self-employment tax, even if a portion of the partner's dis-tributive share of income or loss is community income or loss that is otherwise attributable to the partner's spouse for income tax purposes. If both spouses are partners, any self-employment tax is allocated based on their distribu-tive shares."

Publication 555.

For income taxes (and not self-employment tax) community property requires 50/50. For SE tax it can be pretty much whatever, same as in any other state.

[TXEA]

The Social Security website has a future benefits estimator (that allows you to project future earnings). Probably no time to do this during tax season, but maybe when things slow down some.

And, in community property states, SE tax goes to the one who earned it. It does not have to be split.

[taxea]

The business is allocated by effort put into the business by each not by how it will benefit each. If 1 spouse does 90% of the business and the other 10% then all allocations are made by those percentages.

[Roberts]

Business is allocated by effort?
That's a first.
I'd love to be in the room as the husband and wife determined who works harder.

[Burke]

It's more likely the time spent rather than the effort, which is what she meant. And how much sales/income each produces if it is that type of business. In a formal partnership, it may be controlled by the ownership percentage. I agree that you can't just allocate income based on who needs it. I once had an employee who told me she needed a raise because she was building a second home.

[JohnH]

Well, she did NEED the raise.
She just forgot to present the case proving that she DESERVED the raise.o

Tactical error, strategic disaster.

[Gretel]

Another thought

I too believe that the earnings allocated to each need to somehow reflect reality. You might be up for a law suit if one of them ends up needing disability benefits and they are lower because of such allocations.