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Old 03-30-2016, 01:23 PM
 
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I am self employed all my life and have a small S-Corporation. Does it make sense to pay myself still a monthly wage after I am 66 ( in January 2017) and receive social security? Can anybody help with an answer? My CPA says I should keep paying myself, but the payroll costs me around $ 5000 a year, and I could need saving that money. Thanks in advance for advice!
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Old 03-30-2016, 03:22 PM
 
Location: Florida
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A guess since I do not know your work history would be to stop paying yourself. You would still pick up the income taxes on the S's profit but you would avoid the payroll taxes.

BUT if your Social Security earnings were rather low (you need 35 years of earnings) and would be replaced by current higher earnings you might come out a head by paying SS taxes. Be sure to print out your earnings history from the SS web site and let your CPA show you the numbers.

I would consider deferring my SS to age 70 as your benefit will increase about 8% a year and is inflation adjusted. Think of it as buying a deferred annuity.

Also think that you are planning on living so you will be around long enough to come out ahead financially. The alternative is planning on dying before the break even point. Then if you live past that point you are worse off and may need the extra income due to using up your savings and or
If you are married your spouce can get 100% of your benefits at your death if higher than theirs.

You can also have your spouce claim at 66 and you pick up 50% of there benefit as your benefit grows.

Be sure to sign up for Medicare part A at 65. If you did not do it today. No charge for signing up but there is a cost to not signing.
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Old 03-30-2016, 03:48 PM
 
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The IRS frowns on S corporations not paying wages to shareholder-employees. You are expected to pay yourself what you would have to pay someone doing the same work. The purpose of the S Corp. is to shelter the money that you take as a distribution of profit from payroll taxes. You might want to talk to your CPA just to confirm that the percentage of your wages is reasonable based upon your profit.

You didn't say if you have any other employees, but you might want to talk to your CPA about contributing to a SIMPLE IRA which is basically a traditional IRA with a higher contribution limit. I believe you can still contribute to it after you reach age 70-1/2 even though you still have to take the RMD. That would also give you some income tax protection for the moment.

Also, and I am just thinking aloud here and not sure if this is possible, if you are on Medicare and purchase a Medigap policy ... you might want to ask your CPA if your S Corp. can purchase the Medigap policy for you and if that would be covered under the IRS rule that health insurance is exempt for 2% shareholder-owners of S Corps. for Social Security and Medicare tax. Or, if you are still on private insurance because you are still working, you can talk to your CPA about having your S Corp. purchase that for you. The health insurance part of the wages is also exempt from FUTA. [See IRS Publication 15 -- Circular E]

Here is an example of how the health insurance payroll works: Assume the 2% owner has a salary of $10,000 annually. He would pay Social Security and Medicare tax on that $10,000. But if his S corp purchased the health insurance for him, and the insurance cost $2,000. The 2% owner could take $8,000 of salary and his W-2 would add the $2,000 onto the Federal taxable wages (for a total of $10,000 for Federal income tax purposes) but the social security/medicare taxable amount would be $8,000. The FUTA exemption wouldn't really matter in this case since wages are only taxable for FUTA up to the first $7,000 per employee.
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Old 03-30-2016, 07:37 PM
 
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Great advice! Will talk about that with my CPA. Thank you very, very much!!z,
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Old 03-31-2016, 08:18 PM
 
Location: Close to an earthquake
890 posts, read 678,855 times
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There was and probably still is proposed legislation before Congress that would close the S corporation loophole of avoiding self-employment/social security taxes. I haven't check lately of its status but its intention to level the playing field by not giving an advantage to those who do the S corp thing to avoid paying social security/self-employment taxes.

If you work in your business then compensation of some amount is necessary. I'm sure your CPA loaded his brain before giving you the advice he did. He's better qualified than forum participants.
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Old 03-31-2016, 11:07 PM
 
Location: SoCal
13,297 posts, read 6,362,704 times
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You may want to open solo 401k to hide a lot of that income. I've been researching on this because my husband is consulting and he will be making big bucks and I've already had my retirement money planned out for this year so the best way is to open solo 401k to minimize tax.
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