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Feels unethical but is it?

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    #1

    Feels unethical but is it?

    New potential clients, I'm seeking advice... Husband collects social security. Wife wants to have a garage/car repair business in her name and he is going to work for free. I'm assuming this structure is in an attempt to not affect ss benefits (he is not full retirement age). Feels slimy but I'm not sure why they can't do this...

    I'm sure they won't want to call him an employee and have to pay payroll taxes.

    I can suggest a year end 1099 that stays below the threshold but realize there may be problems with definition of employee. If he is "volunteering" his time, then she may not have "authority" over him for definition of employee purposes.

    Thoughts??
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    #2
    Yes, it is unethical to assign his earned income to her to commit tax or SS fraud.. What is her experience/background/qualification to run a car repair business? What is his? I'm sure there are state labor laws about workers' comp, overtime, minimum wage, etc, as well as the insurance company is going to want to know how many workers there are. Anybody can tell that it is not a normal business practice to have volunteers working at a commercial auto repair shop. Maybe the customers should be informed that a volunteer is working on their car?

    Do they know that the reduction in SS benefits for earning too much prior to FRA is only temporary? Once FRA is reached, the benefit is adjusted to make up for the "lost" benefit in the prior years. So, it's really only a timing difference.

    I would not take on this client under this arrangement.
    "You said it, they'll never know the difference. Come on, we'll paint our way out!" - Moe Howard

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      #3
      I agree with Robert. If he is doing the work, the income needs to be assigned to him. That is required.

      Hopefully they will be okay with that after you tell them that, but if not, you need to show them the door.

      Comment

        #4
        In addition to Rapid Robert's response - is the husband a licensed auto mechanic? How is he going to be compensated should he get accidentally injured on the job fixing a vehicle - no employee on books, no W/C policy, no payroll taxes paid? You know the rules. Run, don't walk, run away from this client FAST.
        Uncle Sam, CPA, EA. ARA, NTPI Fellow

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