Business Owners

Reducing Compensation In Excess of the Maximum Earnings Base to Minimize Social Security Taxes

Reducing Compensation In Excess of the Maximum Earnings Base to Minimize Social Security Taxes

What is it?

Reducing or eliminating compensation in excess of the maximum earnings base is a strategy that may help you minimize Social Security payroll taxes or self-employment taxes. You can reduce or eliminate compensation you receive in two ways: (1) by working less or not at all once you have reached the maximum earnings limit in any one year, or once you have earned the maximum you can in each of the 35 highest earnings years used to calculate your Social Security retirement benefit, or (2) by converting your compensation to a nontaxable form.

Who can use this strategy?

You probably don’t work just to earn a future Social Security benefit. You work because you have to, because you like to, or because you’re not yet ready to retire. However, some workers (i.e., business owners) have more flexibility than others in determining how much they earn or how they’re compensated for working.

Anyone whose annual earnings have equaled or exceeded the maximum earnings base in at least 35 years of employment

Your Social Security retirement benefit is based on your average indexed monthly earnings (AIME). Your AIME is calculated by averaging your 35 highest years of indexed and nonindexed earnings and applying a benefit formula to that average. If, in each of those 35 years, you earned an amount equal to the maximum earnings base for that year, you will receive the maximum Social Security retirement benefit when you become entitled. If you continue to work once you have 35 years of maximum earnings recorded on your Social Security record, you won’t receive any additional retirement benefit, and the payroll taxes you pay will, in effect, be wasted. The maximum earnings base changes from year to year; in 2023, it’s $160,200.

Anyone who expects to have earnings in excess of the maximum earnings base during any one year

If your annual earnings exceed the maximum earnings base during any one year, you won’t pay FICA taxes on those excess earnings, but you’ll pay Medicare taxes on those earnings. When you reduce or eliminate the compensation you receive over the maximum earnings base, you’ll save payroll taxes on the excess amount. If you’re an employee, you will save 1.45 percent of that amount; if you’re self-employed, you’ll save 2.9 percent of that amount.

How does it work?

You estimate your lifetime or annual earnings

To estimate your lifetime earnings, you can go to the Social Security Administration’s website (ssa.gov) and sign up for a my Social Security account so that you can view your Social Security Statement. This statement includes a detailed record of your lifetime earnings. To estimate your current annual earnings, use your paycheck stubs or, if you’re self-employed, your self-employment earnings estimate.

Determine how much you might save in payroll or self-employment tax if you reduce or eliminate compensation

Determining how much you should save will depend on whether you’re the employer or the employee and how much your excess earnings are.

As a self-employed person, Cornelia earned $11,600 in excess of the maximum earnings base for that year. If she reduced her compensation to the maximum earnings base for that year, she would save $336.40 (2.9 percent of $11,600) in Social Security taxes.

Decide whether you can stop working or try to convert compensation to a nontaxable form

Once you determine how much in self-employment taxes or payroll taxes you can save, decide how you want to reduce or eliminate your compensation in excess of the maximum base amount. You might choose to stop working if, for example, you’re already past minimum retirement age (currently 62).

You might choose to convert compensation to a nontaxable form if you own a business or are employed by a business. Nontaxable forms of compensation (for Social Security purposes) include some fringe benefits and investment income.

Strengths

Can save payroll taxes that otherwise would have been wasted

The strategy is particularly effective if used by a business owner who can receive nontaxable benefits in lieu of salary. Or by a person who works after retirement and already receives a benefit close to the maximum due to the impact of excess earnings on a retirement benefit.

Tradeoffs

Your tax savings might be minimal if you use this strategy to reduce your payroll taxes in only one tax year

Note that in the example above, Cornelia only saved $336.40 by reducing her income by $11,600. If she had been an employee instead of being self-employed, she would have saved only half that amount. However, if she received nontaxable compensation or limited her earnings in several years, she might save enough to make using this strategy worthwhile.

If you are interested in our Social Security planning options, learn more here! We understand that retirement planning can be daunting, and we are here to make it easier for you. Our newsletter is a great way to stay up-to-date with our latest offerings and get helpful retirement planning tips. Signing up is easy; click here. We appreciate your interest in our services and look forward to helping you retire better!

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on individual circumstances. Social Security Benefit Planners, LLC  provide these materials for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Creating Exempt Family Employment to Minimize Social Security Payroll Taxes

What is creating exempt family employment?Social Security Payroll Taxes

If you own a family business, you can create exempt family employment to reduce the Social Security payroll taxes that your business incurs. You create exempt family employment by hiring your child who is under age 18, because the earnings of a child under 18 who is employed by a parent who owns a sole proprietorship are not subject to Social Security payroll taxes.

How does it work?

A child who is employed by a parent doesn’t have to pay Social Security payroll taxes under two conditions

  • The child must be under 18
  • The parent’s business must be organized as a sole proprietorship or a partnership

Tip: If the business is organized as a partnership, the parents must be the only partners.

Both the parent and the child save money

The child’s earnings are exempt from Social Security payroll taxes, so the child saves 7.65 percent of his or her salary. The parent also saves the employer’s share of Social Security taxes (7.65 percent of the salary) that he or she would have normally paid.

Strengths

Simple way to save payroll taxes

Hiring a child under 18 is no harder than hiring any other employee. However, if you do want to hire your child, you should check your state’s child labor laws.

Tradeoffs

The child’s employment status might be considered invalid by the Internal Revenue Service (IRS) or the Social Security Administration (SSA)

If you hire a child under 18 to work in your business, you must pay the child a wage that is appropriate for the actual work done by the child in an age-appropriate job. Otherwise, the SSA or the IRS may argue that the child isn’t really your employee.

Tax considerations

  • The cost of labor is a valid business expense deduction that can reduce your tax liability. For more information see IRS Publication 535, Business Expenses.
  • A child may have to pay income tax on his or her earnings over a certain amount. For more information see IRS Publication 929, Tax Rules for Children and Dependents.

We love to help you retire better. Check out our many Social Security planning options. Also, we love to keep in touch with our newsletter; click here to sign up.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on individual circumstances. Social Security Benefit Planners, LLC  provide these materials for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Minimizing Your Social Security Payroll Tax/Self-Employment Tax

What is it?Minimizing Your Social Security Payroll Tax/Self-Employment Tax

If you work in a job covered by Social Security, you pay Social Security payroll taxes on your earnings (your tax is matched by your employer). If you are self-employed, you pay a self-employment tax. These taxes finance Social Security benefits, including retirement, survivor’s, disability, and Medicare. Like many people, you might get more back in benefits than you pay in Social Security taxes, but not necessarily. For example, you may never need to use all of the benefits you’re entitled to, or you may be entitled to a greater benefit based on someone else’s earnings record. If you think that you will contribute much more in payroll taxes than you will receive in benefits, you can try to minimize the Social Security taxes you pay.

Understanding how Social Security payroll taxes and self-employment taxes finance your benefits

If you work in covered employment, Social Security payroll taxes are paid by both you and your employer

When you work for an employer, you pay a tax to finance Social Security benefit programs. This tax is called FICA (Federal Insurance Contributions Act), and your employer deducts the tax directly from your paycheck. For each contribution you make, your employer contributes an equal amount.

If you’re self-employed, you pay a self-employment tax on your earnings

If you’re self-employed, you’re both the employer and the employee of your business, so you’re required to pay a self-employment tax equal to the combined amount of payroll taxes employers and employees pay. You pay this tax when you file your annual tax return with the IRS or in estimated tax payments throughout the year.

The Social Security Administration (SSA) distributes your taxes to three funds

The taxes you pay are distributed to the three trust funds that pay benefits: the Old-Age and Survivors Insurance Trust Fund (OAS), the Federal Disability Insurance Trust Fund (DI), and the Federal Hospital Insurance Trust Fund (HI). Even though you contribute to three funds, the OAS and the DI are combined for taxation purposes. The resulting OASDI tax pays retirement (old-age), survivor’s, and disability benefits, while the HI pays Medicare benefits.

How much tax do you pay?
  • When you work for an employer–If you’re an employee who works in a job covered by Social Security, you pay a total tax of 7.65 percent to Social Security. Of this tax, 6.20 percent goes to the OASDI fund that pays retirement, survivor’s, and disability benefits, and 1.45 percent goes to the HI (Medicare) fund. However, not all of your earnings are subject to Social Security taxes; any income you earn over the maximum earnings limit (in 2023, $160,200) is exempt from the OASDI tax. This means that in 2023, the maximum OASDI tax you will pay (no matter what your income) is $9,932.40 (assuming a tax rate of 6.20 percent). The amount of HI tax you might pay is unlimited, because no portion of your income is excluded from this tax.

If you work for more than one employer during the year and earn more than the maximum earnings limit for the year, it’s possible that more than the maximum OASDI tax will be paid, because each employer is responsible for withholding the employee’s tax and paying the employer’s tax up to the maximum earnings base. If so, you’re entitled to a refund of your overpayment.

  • When you’re self-employed–If you’re self-employed, you pay a 15.3 percent self-employment tax on your self-employment income. Since 1990, 92.35 percent of all net earnings from self-employment has been taxable, unless the profession is not covered by the Social Security Act or unless the net income from self-employment is less than $400. Like wages from an employer, any income you earn over the maximum earnings limit is exempt, and no portion of your net earnings from self-employment is exempt from HI tax.
  • When you’re the employer–If you’re an employer who pays the wages of individuals covered by Social Security, you must contribute an amount equal to 6.20 percent of your employee’s salary to the OASDI fund (up to the maximum limit) and an amount equal to 1.45 percent of your employee’s salary to the HI fund.

You may also owe an additional Medicare payroll tax of 0.9% if your earnings (together with your spouse’s earnings if you file jointly) and/or net self-employment income exceed a certain threshold amount for your filing status.

Who may benefit from minimizing Social Security payroll taxes?

Business owners–If you own a business, you may benefit from minimizing payroll taxes for two reasons:

  1. Business owners must pay the employer share of the FICA tax (7.65 percent of the wages of each covered employee).
  2. Business owners often have higher than average earnings (and thus may fall into the category of people who do not collect as much in benefits as they pay in Social Security taxes).
A person eligible to receive simultaneous Social Security retirement benefits

You may be eligible for both a worker’s retirement benefit based on your own earnings (a benefit equal to 100 percent of your primary insurance amount, PIA) and a spousal retirement benefit based on your spouse’s earnings (a benefit equal to 50 percent of his or her PIA). When you elect to receive retirement benefits, you must apply for both types of benefits at the same time. You will receive a combination of your own benefit and your spousal benefit that equals the higher of the two. Your own benefit is always paid first.

Mary and Larry want to begin receiving retirement benefits. Mary is eligible to receive a worker’s retirement benefit based on 100 percent of her PIA. Her benefit will be $1,000. Larry is also eligible to receive a worker’s retirement benefit equal to 100 percent of his PIA. His benefit will be $450. However, Larry’s spousal benefit, based on Mary’s PIA (50 percent of her PIA, or $500), is more than the benefit he would receive based on his own PIA. So Larry will receive his own $450 benefit plus $50 of his spousal benefit. All the payroll taxes he’s paid over the years will not affect his own Social Security retirement benefit.

A person who has maximum earnings in each of the earnings years that will be used to calculate his or her Social Security retirement benefit

Usually, your 35 years of highest earnings are used to calculate your Social Security retirement benefit. If you have worked at least 35 years and earned as much as the maximum earnings amount in each of those years, you won’t be able to increase your Social Security benefit by working longer. However, if you do work longer (and you may have to, if you’re not yet eligible to receive retirement benefits), you must still pay Social Security taxes on your earnings.

Who may not benefit from minimizing Social Security payroll taxes?

Not everyone should consider using a strategy to minimize Social Security payroll taxes. In particular, the following people will likely not benefit from minimizing payroll taxes:

Individuals who have low lifetime earnings

The Social Security benefit formula favors individuals with low lifetime earnings, and they’re more likely to receive a large Social Security retirement benefit in proportion to the amount they contributed to the system through payroll taxes. In addition, if they want to increase their benefit, they may need to earn more and pay more taxes in order to increase their average indexed monthly earnings (AIME) on which their benefit is based.

Workers covered by Social Security whose spouses are not

If you’re covered by Social Security and elect to begin receiving benefits, your spouse may receive a spousal retirement benefit equal to 50 percent of your retirement benefit (at normal retirement age), even if he or she has never worked outside the home or in Social Security covered employment. This means that the return on your payroll taxes is increased by 50 percent. It’s likely that you will receive back in benefits what you have contributed through payroll taxes. In addition, even if you did attempt to minimize your payroll taxes, you may affect not only your benefit but your spouse’s benefit as well.

Strategies that may be used to minimize payroll taxes

The following table lists strategies that can be used to minimize payroll taxes and who might be able to use each strategy:

Who Might Benefit from Using This Strategy

Strategy

Business Owner

Person Eligible to Receive Simultaneous Benefits

Person with 35 Years of Maximum Earnings

Reduce spousal compensation

Yes

Yes

No

Bunch earnings

Yes

No

No

Replace compensation with nontaxable fringe benefits

Yes

No

Yes

Reduce earnings in excess of the maximum earnings base

Yes

No

Yes

Create exempt family employment

Yes

Yes

No

Restructure business entity

Yes

No

Yes

Strengths

The money saved in payroll taxes can be invested elsewhere–If you save money in payroll taxes, you can take that money and invest it in another retirement plan.

Tradeoffs

When you minimize the amount of Social Security taxes that you pay, you may also limit the benefit you receive

Minimizing your Social Security taxes may limit your Social Security benefits or the benefits paid to your family members. For example, when you own a business and limit compensation paid to a spouse, he or she may not be eligible to receive Social Security disability benefits in the future. In addition, if you and your spouse divorce before 10 years of marriage, your spouse won’t be eligible for any benefits based on your earnings record. Any strategy you use to minimize Social Security payroll taxes should take into account your whole financial picture. Because this is complicated, you may want to consult a financial professional before undertaking the strategy.

Business planning strategies may raise the ire of the SSA or the IRS

The SSA and the IRS may closely scrutinize any questionable business reorganization. For example, if you decide you want to create exempt family employment, you must ensure that the family members you pay are doing real work for you and that you’re paying them a reasonable wage. Otherwise, the SSA or the IRS may disallow your business arrangement.

Tax considerations

Self-employment tax is deductible

When you file your federal income tax return, you can deduct one-half of the self-employment tax you paid that tax year. (Note, though, that you won’t be able to deduct any portion of the additional Medicare payroll tax if you’re subject to it.)

Strategies to minimize Social Security payroll taxes may affect your income taxes

Certain strategies you use to minimize your payroll taxes (such as restructuring a business entity) may also affect your income taxes. You should consult a tax professional or financial professional before undertaking any tax strategy.

Questions & Answers

If you hire an independent contractor, do you have to deduct Social Security payroll taxes from his or her wages?

No, but you should be sure he or she is actually working as an independent contractor. Does he or she work for other businesses besides yours? Do you have a contract with him or her? Does he or she set his or her own hours? If you can answer yes to these questions, then he or she may be an independent contractor who has to pay self-employment taxes. If he or she is an independent contractor, you’re not responsible for collecting Social Security taxes from his or her pay or paying the employer’s share of payroll taxes.

Thank you for taking the time to read this article. We hope it has given you some insight into Social Security.  If you have any questions or would like more information, please feel free to contact us. We would love to hear from you. Our newsletter is a great way to stay up-to-date with our latest offerings and get helpful retirement planning tips. Signing up is easy; click here.

 

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on individual circumstances. Social Security Benefit Planners, LLC  provide these materials for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Bunch Earnings to Save Social Security Taxes

What is it?

As a business ownerBunch Earnings to Save Social Security Taxes, you may save Social Security taxes (self-employment taxes) by postponing or accelerating income so that your earnings are bunched in alternate years. This strategy works if you are self-employed and your annual earnings are at or near the maximum earnings base because your earnings count for Social Security purposes in the year they’re received, not in the year they’re earned. Since earnings over the maximum earnings base are taxed at a lower rate than earnings at or under the maximum earnings base, you can save payroll taxes if you bunch your earnings so that they exceed the maximum earnings base in alternate years.

How does it work?

Understanding self-employment taxes

If you’re self-employed, you pay a self-employment tax equal to 15.3 percent of your earnings to finance Social Security. Of this tax, 12.4 percent goes to OASDI (Old-Age and Survivor’s Insurance Trust Fund and Federal Disability Trust Fund) to finance your retirement, survivor’s, and disability benefits, while 2.9 percent of this tax goes to HI (Federal Hospital Insurance Trust Fund) to finance your Medicare benefits.

Understanding the maximum earnings base

The maximum earnings base is the maximum amount of earnings that are subject to the OASDI tax. This amount is also the maximum amount of earnings credited to your Social Security record. The maximum earnings base (in 2023, $160,200) is determined annually.

How the maximum earnings base affects your self-employment tax

You don’t have to pay the OASDI tax on any earnings you have in excess of the maximum earnings base. However, you do have to pay the HI tax on earnings in excess of the maximum earnings base.

Caution: You may also owe an additional Medicare payroll tax of 0.9% if you have high earnings. If you’re self-employed, this additional tax applies to net self-employment income that exceeds a certain threshold amount for your filing status.

How to do it

Estimate your earnings

Estimate your earnings for the current tax year. If you are able, project your earnings for the next tax year as well. Is it likely that your earnings will approach or exceed the maximum earnings base in either tax year? If the answer is no, bunching your earnings isn’t likely to benefit you in terms of Social Security taxes. If it appears that your earnings may reach or exceed the maximum earnings base in one year but not the other, however, it may make sense to try to shift earnings into the tax year in which you’ll exceed the maximum earnings base.

Accelerate your earnings

Your earnings from self-employment count for Social Security purposes in the year they’re received rather than in the year they’re actually earned. If you believe that your earnings will exceed the maximum earnings base in the current tax year but not the following tax year, you may want to consider accelerating earnings into the current year. Why? Any self-employment earnings you have that exceed the maximum earnings base in the current year will be subject to the HI portion of the self-employment tax, but not the OASDI portion. Since your earnings in the following tax year will likely not exceed the maximum earnings base, and thus will be subject to both the HI portion and the OASDI portion of the self-employment tax, you can benefit from accelerating your earnings into the current year.

Postpone your earnings

If you believe that your earnings will reach or exceed the maximum earnings base in the following tax year but not the current tax year, you may want to consider postponing earnings into the following year. Again, by doing so you could avoid the OASDI portion of the self-employment tax on the earnings deferred.

Consider your overall tax situation

Bunching your earnings from self-employment may help you save Social Security taxes, but you should consider the overall tax implications. For example, if your earnings in one year are high enough, you may be subject to the additional Medicare payroll tax and the Medicare investment income surtax, or even be pushed into a higher income tax bracket, among other things. Consult a tax professional for help with your individual tax situation.

If you are interested in our Social Security planning options, learn more here! We understand retirement planning can be daunting, and we are here to make it easier for you. Our newsletter is a great way to stay up-to-date with our latest offerings and get helpful retirement planning tips. Signing up is easy; click here. We appreciate your interest in our services and look forward to helping you retire better!

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on individual circumstances. Social Security Benefit Planners, LLC  provide these materials for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Restructuring Business Entity to Minimize Social Security Payroll Taxes

What is restructuring a business entity?Restructuring Business Entity to Minimize Social Security Payroll Taxes

Restructuring your business entity can minimize Social Security taxes

If you own a business as a sole proprietorship, you may be able to minimize the Social Security taxes you pay by incorporating your business and causing the business to elect to be taxed as an S corporation. If your business is treated as an S corporation for federal income tax purposes, then you may be able to continue to benefit from a single level of tax on your business earnings, while minimizing the portion of your business earnings that are treated as wages or self-employment income subject to Social Security taxes.

How does it work?

S corporation owners are considered employees of the corporation

If you own a corporation and perform substantial services as an officer of that corporation, you’re not treated as self-employed for tax purposes; rather, you’re treated as an employee of the corporation. Because you’re not self-employed, you don’t pay self-employment taxes. However, as an employee, both you and the corporation have to pay Social Security payroll (FICA) taxes on your salary. If you’re both an officer of your corporation and a shareholder, you may be able to reduce the amount of FICA tax you pay by receiving some of your compensation as corporate dividends.

Corporate dividends can reduce your payroll taxes

As a shareholder, you can withdraw earnings from your corporation in the form of dividends. You won’t have to pay Social Security payroll taxes on that part of your corporation’s earnings, because investment income is not subject to FICA taxes. You will only pay FICA taxes on the wages you receive from the corporation.

Strengths

You can reduce the amount of Social Security payroll taxes you owe

Incorporating your business and causing it to elect to be taxed as an S corporation can save you money by reducing the amount of Social Security payroll taxes you owe if, as a shareholder of the corporation, you withdraw part of the corporation’s earnings in the form of corporate dividends, rather than withdrawing such earnings as wages.

Tradeoffs

Setting up a corporation can be expensive

Operating a sole proprietorship is simpler and less expensive than operating a corporation. If you incorporate your business and elect for it to be taxed as an S corporation, you will have to pay incorporation fees, and you may have to hire accounting, tax, or legal professionals to advise you. There are a number of requirements that must be satisfied for a corporation to be eligible to elect to be taxed as, and continue to qualify as, an S corporation.

The Internal Revenue Service (IRS) may challenge your compensation structure

The IRS may audit your business and it may recharacterize all or a portion of any dividends distributed by the corporation to you as wages if it believes that the corporation is paying you compensation that is unreasonably low in order to avoid Social Security taxes. To avoid this, you must pay yourself an annual salary that is reasonable considering the work you actually do for the corporation during the year. (The IRS may, in certain circumstances, challenge unreasonably high compensation as well.)

We love to help you retire better. Check out our many Social Security planning options. Also, we love to keep in touch with our newsletter; click here to sign up.

Broadridge Investor Communication Solutions, Inc. prepared this material for use by Social Security Benefit Planners, LLC.

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on individual circumstances. Social Security Benefit Planners, LLC  provide these materials for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Social Security Benefit Planners, LLC and its affiliates are in no way associated with or approved, endorsed, or authorized by the Social Security Administration.

Top Tips for Business Owners to Maximize Retirement Income

Are you a business owner with an at-home spouse who helps out with bookkeeping or a variety of other tasks that need to be done? Once you get to retirement age it’s too late, but for those of you that are in your 20’s, 30’s, 40’s or even 50’s there’s still time to let these efforts build future benefits. Paying your spouse at least $4,880 a year will ensure that they continue to vest into the Social security system, which will help you at retirement time.

To fully vest you need to earn 40 credit hours, with a maximum of 4 credits per year at $1220 per credit.  Spouses who are not vested can still pull a half benefit off of their working spouse’s retirement benefit (or ex-spouse’s, if married over 10 years). If widowed after being married 9 months or more, you can draw benefits up to your deceased spouse’s full amount, depending on what age decide to file.

If both spouses have work history the social security retirement benefits picture can drastically change for the better. With two vested partners you’ll also have more options, such as the potential for the lower earning spouse to pull earlier while delaying the higher earning spouse’s filing until age 70 to get the highest benefit. And don’t forget that social security disability benefits are hinged on a person working at least 5 out of the last 10 years, which can help when the worst happens.

As you can see, it’s in your best interest to ensure that the work both partners contribute to your business is recognized as paid employment by the Social Security Administration. We offer a pre-check social security flat fee planning option that will help you review where you are today and give you insight about the impact on future income you can make by ensuring that both spouses are being paid for the work that they do.

Please “Select a Plan” so we can get started on maximizing your social security benefits or take our quiz to find out how much you know about your social security.

Stop Screwing Yourself, Business Owners!

Business owners typically prioritize the success of their company over other financial goals. That’s a good thing in general, but it’s important to keep a balance or you could be creating a host of long-term financial problems for yourself while you’re trying to do the right thing.

A common pattern I see with my clients is that they pay themselves as little as possible and put the vast majority of the available money back into the business. That may be good for the business but it’s not necessarily a smart move for your overall financial picture. When it’s time for retirement, problems arise:

  • Little Social Security income. By keeping the amount you pay yourself low over the years, you deprive yourself of Social Security benefits you might have been able to collect later. The amount of monthly benefit you receive is calculated based on your average earnings over a 35-year period. If you didn’t pay yourself much, the government won’t either.
  • Minimal retirement savings. When you plough all the profits back into the company you reduce the amount available to fund your personal retirement account. That means you don’t have a substantial nest egg that’s growing to take care of you once you’re ready to hand the business over to new owners.
  • Expecting too much. Selling your business when retirement beckons may deliver a nice bundle to provide for your financial needs in the coming years. Then again, it might not. Economic conditions shift, and the type of business you own can make a huge difference in the amount you can actually sell it for.

Take care of your business, but be sure to look out for your own best interests as well. Paying yourself a fair wage and investing in assets like equities and real estate are just as important as that new equipment or extra staff member your company could use. The money you pay into Social Security and invest privately will work together to give you a higher income in retirement than you’d have otherwise.

If you’re not sure how much you should be paying yourself or investing, please contact us today and we’ll help you find the right balance. You deserve a comfortable retirement!

Social Security Benefit Planners
800.270.SSBP (7727) info@socialsecuritybp.com

Business Owners: Stop Screwing Yourself on Social Security!

Social Security for Business Owners

Business owners typically prioritize the success of their company over other financial goals. That’s a good thing in general, but it’s important to keep a balance or you could be creating a host of long-term financial problems for yourself while you’re trying to do the right thing.

A common pattern I see with my clients is that they pay themselves as little as possible and put the vast majority of the available money back into the business. That may be good for the business but it’s not necessarily a smart move for your overall financial picture. When it’s time for retirement, problems arise:

  • Little Social Security income. By keeping the amount you pay yourself low over the years, you deprive yourself of Social Security benefits you might have been able to collect later. The amount of monthly benefit you receive is calculated based on your average earnings over a 35-year period. If you didn’t take pay yourself much, the government won’t either.
  • Minimal retirement savings. When you plough all the profits back into the company you reduce the amount available to fund your personal retirement account. That means you don’t have a substantial nest egg that’s growing to take care of you once you’re ready to hand the business over to new owners.
  • Expecting too much. Selling your business when retirement beckons may deliver a nice bundle to provide for your financial needs in the coming years. Then again, it might not. Economic conditions shift, and the type of business you own can make a huge difference in the amount you can actually sell it for.

Take care of your business, but be sure to look out for your own best interests as well. Paying yourself a fair wage and investing in assets like equities and real estate are just as important as that new equipment or extra staff member your company could use. The money you pay into Social Security and invest privately will work together to give you a higher income in retirement than you’d have otherwise.

If you’re not sure how much you should be paying yourself or investing, please contact us today and we’ll help you find the right balance. You deserve a comfortable retirement!