Hi, new user in Ohio needs SS retirement info?

[David J]

I am new here and need a little info. I am retired and old enough (64) to collect social security. However, I have not done so, because I fear the SS folks may take issue with my situation. My wife has a small business that is an S-Corp. She draws a salary of approx $12K, but we also receive a dividend distribution of $10K that shows-up on our joint income tax 1040 form. The dividend distribution is taxed as income, but not salary. My problem is that I take no compensation from the S-Corp. I am listed as the Vice-President, but really don't do any work other than to help her out for a few minutes on occasion. I retired from my full-time job last year and work part-time now earning below the Income threshold of $14,200 to collect social security. So my concern is that if the Social security folks see the dividend distribution income on our taxes, they may feel that I should have been drawing a salary over the previous years and even now. I could start drawing a small salary now (maybe about $5K), but that would likely raise some flags also. We could really use the retirement income from Social Security, but I am afraid to apply. If I wait till I am 67, it is no longer an issue, but I could use the money now. I am foregoing income that we could really use. Any suggestions? Help needed in Ohio!
Thanks so much!
Sincerely,
David J

 

[samclem]

As far as I can tell, you don't have any issue with the folks at SS. If you're of the proper age and have an earnings history and SS credits, then you qualify for SS checks and you'll get them. They won't care at all about your wife's business, and they probably won't know that you were/are the vice president of the company.

If anything, the problems you cite would be tax problems with the IRS. I've got no particular expertise on this issue, but if you followed the rules concerning what you should receive as dividends vs salary from your wife's company, then you should be okay. My guess is that it would require an audit of some kind for the IRS to make a determination that you should have properly taken the S-Corp dividends as salary instead, and if they make that determination then it would affect the taxation of your SS benefits. You'd have to pay any taxes due, interest, and maybe a fine.
I'm sure folks with more knowledge will chime in.

If there's a problem/potential problem with the way you are receiving compensation (dividends vs salary), how hard is it for you to simply stop being the VP of the company right now? Any problems with the IRS would be ones related to the taxes you owe on your SS benefits (going forward, statrting from when you receive the first check) due to this other earned income. She'd get the dividend checks.

samclem (also from Ohio)