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Question
I own a small interest (5%) in an auto dealership owned and run by my sons. We are a subchapter S for taxes. Up until now they have paid me a salary (approx $25k per year, although I don't actually work, to increase my SS benefits. They also receive a salary. Later in the year they distribute the remainder of the profits as dividends.
Question. I'm getting ready to retire and I am concerned about the salary and my SS benefits. If I earn more than $12,000 SS will take 50% of every dollar over.
Can I just take all of my profits as dividends which are not subject to the SS earnings.
Thanks
Bob,
Thanks for your question.
There are a number of issues here. First, if you are not doing any work for the salary, the IRS can reclassify all of that as your distributive share of the profits and disallow the SS payments.
Secondly, S corporations do not pay dividends. The shareholders are taxed on their share of the profits, not on the distributions. Since the profits are taxed, the distributions are tax free.
Since this is apparently not how this is being handled, you should probably consult a local CPA to help you get this straightened out.
Hope this helps.
John Stancil, CPA
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John Stancil, CPA
Expertise
I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I teach tax and accounting at a small church-related college. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a part time tax practice for over 35 years. I am a member of the AICPA, National Association of Tax Professionals, and the Institute of Management Accountants. Visit my website at www.johnstancilcpa.com. Also visit my blog, www.thetaxdocspot.com. Prepare and file your own taxes at www.1040stancilcpa.com
Experience
I hold a doctorate in Accounting, and four professional certifications: CPA, CMA, CGMA, and CFM. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 30 years and have taught accounting and tax at the college level for over 30 years.
Organizations
AICPA, FICPA, IMA, NATP
Publications
The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly.
Education/Credentials
DBA University of Memphis
MBA University of Georgia
BS in Accounting Mars Hill College
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