Indies Who Collect Social Security

Hi Ms. Walker,

My Dad and I run an internet website business selling music education products.

We, or I should say he has been in business since 2000 as he is the sole proprietor. I'm 29 and have basically been non-existent in the eyes of the IRS since 2003 after I came home from college to help Dad out with the business. He is now taking his Social Security so he cannot make over $14,000 of income. So he said it's time to incorporate the business, in my name for that reason and for protection reasons (a trust to protect me from crazy relatives who may try to take a piece of the business and all of the scenarios that can happen in that realm).

I recall reading some info about Social Security Administration getting suspicious if they think a family member is simply funneling income to another family member, but still working. Is this a myth?

What would you suggest in our situation?

Thank you,Mike


Hello Mike,

I can't advise about the crazy relatives. That's a legal question and I strongly urge you to contact an elder care or estate attorney and talk over your dad's situation.

If your dad is a sole proprietor and you work for him the most simple and least expensive solution is for you to become his employee.

You didn't give me any numbers so I'll pull some out of the air to give you an idea of how it works.

Dad's indie business grosses $100,000 and his expenses are $20,000 which leaves a profit of $80,000. Dad wants to work less and play more golf or go hiking in India and so you do about 85% of the work. He pays you a salary of $68,000 a year which, when subtracted the business profit of $80,000, gives him a net income of $12,000. That's below the Social Security limit.

Things you must keep in mind:
-- You really must do 85% of the work.
-- You set up the payroll according to the rules.
-- You claim all your income.

Other advantages:
Dad could set up a pension plan for you as well as give you medical benefits.

Something else for you and all indies to keep in mind:
Many self-employeds cheat themselves because they don't know all the possibilities in structuring an indie business. They think that keeping business under-the-table or "non-existent in the eyes of the IRS" is the smart tax-saving way to do things. It's not smart. Often it costs you more than were you doing business on the up-and-up. And it could be considered fraud. Which is really not good.

Best,
June