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@HOPE2 wrote:
Thanks and that is nice point you mentioned.
Social security cap is $160200 and if he/she earned less than $160200 what happened? I would like to compare with what is in my thought from the past. For physicians they reach to social security benefits may sooner than the others due to their income during 10 years. I have had always this question in my mind 40 points need to complete to get max of social security benefits and how affects their earning or other people earning after 10 years when they already caught 40 points. Could you please give me numbers regarding if wages less than social security max so I can correct whatever already planted in my thought. Greatly appreciated it!
The 10 years is if a person qualifies for Social Security or not. The AMOUNT they receive is based on their 35 highest years of wages (indexed for inflation).
For example, let's say a person was self employed on Schedule C, and had a profit of $80,000. Then he changes to a S-corporation with $60,000 of wages and $20,000 of distributions. He now just lowered his income for Social Security purposes (assuming this is one of his 35 highest wage years), which means his potential Social Security benefits will be lower than if he had continued to report his business on Schedule C.
It has a pretty significant impact on Social Security benefits if their 35-year average is below the second "bend point" (roughly $80,000-ish in today's dollars). It still impacts things if their 35-year average is over the second "bend point" ($80,000-ish in today's dollars), but the impact is smaller.
Obviously there can be advantages to having extra money 'now' versus having potential benefits (retirement, disability, spousal benefits, etc.) in the future. But in my opinion unless the client knows exactly how their potential benefits are being affected, they should NOT be making the S-election.