Work Income Before Full Retirement Age

[DANIELR]

I am the sole stock holder of a small c corp. I am considering filing for Social Security before my full retirement age. I am currently drawing a salary plus monthly bonus. Am I correct in assuming that if the corp. reports the bonuses as dividend payments, they will not count as income for the purposes of reducing my benefit? Thanks

[llworking]

I am the sole stock holder of a small c corp. I am considering filing for Social Security before my full retirement age. I am currently drawing a salary plus monthly bonus. Am I correct in assuming that if the corp. reports the bonuses as dividend payments, they will not count as income for the purposes of reducing my benefit? Thanks

Its technically correct that dividends are not earned income for the purpose of earned income in regards to early SS retirement benefits. However, based on the fact that you are the sole shareholder of a C corp you would be walking a very fine line, and one that might not be to your advantage, tax wise.

First, dividend income factors into the calculation as to whether or not SS retirement benefits are taxable. So, if you have enough dividend income its possible that up to 85% of your SS retirement benefits could be taxable. On top of that, the profit of the C-corp is taxable to the C-corp before dividends are issued to the shareholders, and dividends are also taxable to shareholders, so double taxation plus potential taxability of SS benefits could easily cause you to pay more in taxes, much more, overall, than if you simple did not retire and made an S-corp election. In fact, I am uncertain at this point as to why you are a C-corp at all, as a single shareholder.

You really need to consult a tax professional.

[DANIELR]

Its technically correct that dividends are not earned income for the purpose of earned income in regards to early SS retirement benefits. However, based on the fact that you are the sole shareholder of a C corp you would be walking a very fine line, and one that might not be to your advantage, tax wise.

First, dividend income factors into the calculation as to whether or not SS retirement benefits are taxable. So, if you have enough dividend income its possible that up to 85% of your SS retirement benefits could be taxable. On top of that, the profit of the C-corp is taxable to the C-corp before dividends are issued to the shareholders, and dividends are also taxable to shareholders, so double taxation plus potential taxability of SS benefits could easily cause you to pay more in taxes, much more, overall, than if you simple did not retire and made an S-corp election. In fact, I am uncertain at this point as to why you are a C-corp at all, as a single shareholder.

You really need to consult a tax professional.

That's great advice. I will do that. Thanks!