Starting a business next year, should I pay myself ?

[steviekm3]

Hi,
I'm 41 years old and have about 18 years working full time under my belt.

About 12 of those count towards social security, where I paid into it max amount. The other 6 years I worked outside the country so did not pay into SS.

My question is right now I have enough money to live reasonable (middle class) for about 20 years.

When I start my business should I pay myself so that down the road I get social security ? If so how much should I pay myself ? The other option is to keep as much money in business trying to grow it.

My wife has worked about 6 years full time and now works part time making about 40k.

 

[Ronstar]

Yes- always pay yourself. You'll never know how your business is doing financially unless you pay yourself. The amount is subject to how much $ the business is making


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[bizlady]

Depending on the business structure, one way or another you will most likely get SS credits. If you form an LLC, you can take the profit as your wages- without having to pay yourself a salary. You report income on Schedule C, and the profit will get recorded with SS. If you form an S Corp, you must pay yourself a salary, and you get some tax advantages doing so.

My suggestion would be to spend some time with an accountant, present your business plan and get his/her suggestions. The cost would count toward your startup costs if you do so before starting the business.

 

[steviekm3]

Yes I think I will need to talk to an accountant. I plan simply to start an investment company ( or llp ) where basically I am the only client ( maybe more clients down the road ).

 

[ERD50]

Maybe you should pay your wife (and yourself?)? It sounds like she may need the credits more than you?

I really don't know - I'm just tossing the idea out there for your consideration. Might be totally backwards.

-ERD50

 

[steviekm3]

Yes paying my wife is possibility. She has worked full time in her career before and is now working part time. So far she wants to work part time for the foreseeable future.

 

[Senator]

Yes, you have to pay yourself something anyway, it cannot all be dividends.

Pay yourself at least $816 per month. That way, you cover the 90% social security bracket. It wont be a lot of SS, but you will get the most bang for the buck.

 

[walkinwood]

If I understand you correctly, you're going to start a company to manage your own investments. ie. you're the only customer. (At least in the beginning).

Now you take some of your gains or a fixed $ amount or a percentage of your portfolio and count that towards your company profit or your salary.

That means you pay income taxes on the profit/salary including medicare & social security. In essence, you are increasing your expense ratio with the hope that the increase in your SS payment will more than make up for it in the long term.

Would it be less expensive to fund a fixed annuity that starts paying out at 66 or whatever age you choose?

 

[ducky911]

I ran my own company for the last 20 years before retirement. I always paid myself. Maybe a little low for a couple years but than up to normal. Big red flag to IRS if you do not. I also paid for the commute time for company car. Wife did not have a company gas card or any other benifits. 20 years never was audited but was always ready. 35 year of work never collected unemployment.
If you don't have to cheat to start a company you will make it up in efficiency over the bigger companies.

 

[steviekm3]

If I understand you correctly, you're going to start a company to manage your own investments. ie. you're the only customer. (At least in the beginning).

Now you take some of your gains or a fixed $ amount or a percentage of your portfolio and count that towards your company profit or your salary.

That means you pay income taxes on the profit/salary including medicare & social security. In essence, you are increasing your expense ratio with the hope that the increase in your SS payment will more than make up for it in the long term.

Would it be less expensive to fund a fixed annuity that starts paying out at 66 or whatever age you choose?

Do you think there are tax advantages to above. I have considered it and still think about the annuity route. One worry I have is inflation affecting fixed income down the road and also about if I can make better return investing on my own.

It might be worth doing annuity if there are tax advantages.

 

[walkinwood]

Do you think there are tax advantages to above. I have considered it and still think about the annuity route. One worry I have is inflation affecting fixed income down the road and also about if I can make better return investing on my own.

It might be worth doing annuity if there are tax advantages.

I don't know much about annuities or taxes, so you'll have to research it (or someone else in this forum will probably have the answers). Plug the numbers into Turbotax and the SS calculator to see if you'll come out ahead.

It just seemed to me, that if your idea is profitable with just you as a client, it "should" have been discovered before.