Author Topic: DH and DW Self employed, looking at changing income split  (Read 618 times)

BTDretire

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DH and DW Self employed, looking at changing income split
« on: July 26, 2017, 06:08:26 PM »
  I'm just looking for feedback to get the ball rolling on how to plan for tax purposes.
My wife and I are self employed, a we usually just split the business income for tax purposes. Have for 17 years.
We split about $76k, so $38K each. I am 4 years from FRA, she is 9 years for FRA. I see having the business
only 5 more years. I'm already cutting my work way back.
 I have been on the SS site and found if I continue earning $38K, it does very little to increase my SS benefit.
 Increasing her income would do a lot to increase her SS benefit.

 I'm thinking about changing our income split, but need to get more understanding how it will affect us.
As it stands we both max our SEP/IRA  ~$7,000 each and we max out an HSA ~$7,650.
 We have two kids in college so have college deductions and credits. Last year we paid less than $1,000 federal tax and $11,500 in SS tax. We have a very low Federal Income tax, but as you see there are no deductions to reduce SS taxes. But I'm to the age where I almost want to pay more to increase my benefit, well, not quite :-).
 If I change the split to $10k and $66K, I assume the SEP/IRA deduction would be the same amount just divided differently? The HSA, still the same?
 Anyone see problems with my idea?

 There is another scenario, having separate 1040 forms, this I have less info about, but the advantage I'm looking for is the Roth Conversion. If I have $0 income or even $10K, I could do a pretty good amount in a conversion without any tax cost. I think? But we would at the very least lose some tax advantages of a combined form, I think.
Feed back is appreciated.

SeattleCPA

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Re: DH and DW Self employed, looking at changing income split
« Reply #1 on: July 27, 2017, 07:26:43 AM »
Two comments, probably neither of which answers your question... but may help you in your decision making:

1. You aren't supposed to arbitrarily split your income... You don't pay much income tax so probably no one will care, but rules say you can't do what you're proposing. (BTW, you can split income in manner that reflects economic substance... E.g., you get less because you're working less.

2. Your spouse gets either their SS benefit or half of yours. Your situation sounds like one where you want to be sure that you aren't trying to boost her benefit when half of yours is a better number.
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BTDretire

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Re: DH and DW Self employed, looking at changing income split
« Reply #2 on: July 27, 2017, 08:27:21 AM »
Two comments, probably neither of which answers your question... but may help you in your decision making:

1. You aren't supposed to arbitrarily split your income... You don't pay much income tax so probably no one will care, but rules say you can't do what you're proposing. (BTW, you can split income in manner that reflects economic substance... E.g., you get less because you're working less.
Quote
I am working much less, in fact I took Jan thru April off, but then things transpired so now I need to help
about 20 hours a week compared to my wife's 70 hours. So I don't see that as a problem, in fact (if what you say is true) I might be wrong if I don't change the split.  I thought I was retiring this year but it didn't work out.


2. Your spouse gets either their SS benefit or half of yours. Your situation sounds like one where you want to be sure that you aren't trying to boost her benefit when half of yours is a better number.
Are you saying that we both can't collect on our separate accounts? That does not seem right.
 Our yearly SS statement says I'll get about $20k a year and she will get $16k a year.
You're not saying because we are married that changes our benefits are you?
 I'm thinking that increasing her income for the next 5 years could bring her benefit up closer to mine.
But continuing my income will not increase my benefit.

SeattleCPA

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Re: DH and DW Self employed, looking at changing income split
« Reply #3 on: July 27, 2017, 09:51:48 AM »
With the numbers you just provided, ignore my second comment...

But here's what I was pointing out... spouse either gets 50% of your benefit (or $10K) or her benefit (which turns out to $16K)...

But say her earnings meant she was going to get $6K...

If you'd been trying to move her benefit from, say, $6K to $9K, that wouldn't make sense...  because you wouldn't in end take the $9K you'd just have her take the $10K.
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