Two accountants disagree - Bogleheads for the tiebreaker

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simplesauce
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Two accountants disagree - Bogleheads for the tiebreaker

Post by simplesauce » Fri May 29, 2020 7:05 am

Here is the simple scenario:

A husband and wife work together (as Realtors,) 100% Commission-based income (1099, schedule C.) They have the option to decide who earns the income on each sale throughout the year.

Their former accountant’s strategy was to have the husband take about 75% of the commissions, and the wife take 25%. Her reason? She said “One of the things to think about is how much the wife pays under Social Security so we probably should raise some of her income in that fact because when she retires it would help her be eligible for more.”

This year, they hired a new accountant. And his strategy is the husband should collect 100% of the income, and the wife 0%. His reason? He said “The more income the wife makes, the more social security tax.“ He views this as a negative!

Addl info:
Total income about $300k per year.
Couple is in their 30’s.

What are your thoughts? Thank you!
Last edited by simplesauce on Fri May 29, 2020 7:17 am, edited 1 time in total.

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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by Jack FFR1846 » Fri May 29, 2020 7:13 am

This is a perfect excel spread sheet problem. Both accountants are correct, but each is focusing on opposite ends of social security.

For the spread sheet, project the cost. What is the SS tax with 100% to one of them. Take your pick, or just increment the pay for the other. Total how much is paid before retirement. Will one...or both of them reach the cap? That matters and I expect the new accountant is pointing to that and saying that at that point, no more tax is being paid.

On the collection side, project each year SS is taken. Do not forget that when the trust fund runs out of money around 2034 or sooner, that payments go to 75 or 80%.

To me, without doing this math homework, you can't say which is better for benefit to the couple.
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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by simplesimon » Fri May 29, 2020 7:15 am

Not knowing anything like actual earnings, age, health, and prior SS earnings I imagine the wife should earn something to get credit ...it would be beneficial to get to the first SS bend point at least even if those earnings would not be taxed (above $137.7k in 2020).

Need more information.

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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by simplesauce » Fri May 29, 2020 7:18 am

simplesimon wrote:
Fri May 29, 2020 7:15 am
Not knowing anything like actual earnings, age, health, and prior SS earnings I imagine the wife should earn something to get credit ...it would be beneficial to get to the first SS bend point at least even if those earnings would not be taxed (above $137.7k in 2020).

Need more information.
More info added!

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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by simplesauce » Fri May 29, 2020 7:18 am

Jack FFR1846 wrote:
Fri May 29, 2020 7:13 am
This is a perfect excel spread sheet problem. Both accountants are correct, but each is focusing on opposite ends of social security.

For the spread sheet, project the cost. What is the SS tax with 100% to one of them. Take your pick, or just increment the pay for the other. Total how much is paid before retirement. Will one...or both of them reach the cap? That matters and I expect the new accountant is pointing to that and saying that at that point, no more tax is being paid.

On the collection side, project each year SS is taken. Do not forget that when the trust fund runs out of money around 2034 or sooner, that payments go to 75 or 80%.

To me, without doing this math homework, you can't say which is better for benefit to the couple.
More info added. Yes, your comments make sense.

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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by dwickenh » Fri May 29, 2020 7:18 am

Considering that SS payment are based on a tiered credit basis( i.e. lower income receives more benefit than the upper income) I would think the
answer would hit somewhere near the 50/50 income split. This answer is not obtained through complex math projections, but seems to make common sense.
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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by JoMoney » Fri May 29, 2020 7:19 am

They're both right, but have a different objective. Paying less into SS vs (potentially) getting more out of it.
I think I would prefer the wife to be paying into it as well, if for no other reason than to ensure she was covered by SS Disability in the event of a severe medical condition, and needed SS Disability and Medicare to help with income and health coverage.
Also, depending on how much they've each contributed in the past, they may get more benefit from the money going in. - The multipliers for the benefit amount being contributed goes down the more you've contributed, you get at 90% multiplier on the first x percentage, a 32% multiplier on the next, and if you exceed that only a 15% multiplier ... she might get a bigger 'bang for the buck' by making contributions then he gets at this point.
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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by TheTimeLord » Fri May 29, 2020 7:19 am

simplesauce wrote:
Fri May 29, 2020 7:05 am
Here is the simple scenario:

A husband and wife work together (as Realtors,) 100% Commission-based income (1099, schedule C.) They have the option to decide who earns the income on each sale throughout the year.

Their former accountant’s strategy was to have the husband take about 75% of the commissions, and the wife take 25%. Her reason? She said “One of the things to think about is how much the wife pays under Social Security so we probably should raise some of her income in that fact because when she retires it would help her be eligible for more.”

This year, they hired a new accountant. And his strategy is the husband should collect 100% of the income, and the wife 0%. His reason? He said “The more income the wife makes, the more social security tax.“ He views this as a negative!

What are your thoughts? Thank you!
Sounds like the first accountant is looking out for the long term, the second the short term and neither for the wife's best interest in case of divorce.
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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by nisiprius » Fri May 29, 2020 7:31 am

I think the new accountant must be wrong. Or making important unstated assumptions. Or communicating poorly.

To a first approximation Social Security tax is just a percentage of income, so shifting income back and forth between partners isn't going to change the total number of dollars the couple is paying into Social Security.

Of course there's a detail: if the result of designating everything as one person's income cause that person's income to exceed the $132,900? wage base, the dollars earned over $132,900 aren't taxed but also don't create benefits. I don't know if your accountant is thinking about that. That's a decision for the couple to invest less into Social Security than they could, and eventually get a lower combined benefit than they could. Is that what he has in mind? (Unless he is suggesting buying a private insurance-company annuity with the dollars "saved" by lowering social security taxes, then he is implicitly saying that it is better to buy mutual funds than to put money into Social Security).

The big consideration I think is what happens when one member of the couple dies. The other member is entitled to a survivor's benefit equal to what the deceased member was receiving but must choose either continuing their own benefit, or receiving that survivor's benefit, but not both. If one knew absolutely for sure which member would die first, but you really don't, then I guess that would weigh in favor of making choices to maximize the income of the shorter-lived spouse.

The main thing is this: if the new accountant doesn't claim to be expert on social security claiming strategies, and doesn't have software he can run to take account of the dozens of moving parts, he shouldn't be quick to make off-the-cuff remarks.
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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by Katietsu » Fri May 29, 2020 7:39 am

My niece was in a similar situation. The first accountant whose goal was just to reduce social security tax turned out to be influenced by his political beliefs.

I would never agree to having zero social security credits going towards my record while only in my thirties. This is awful advice.

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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by HomeStretch » Fri May 29, 2020 7:44 am

Katietsu wrote:
Fri May 29, 2020 7:39 am
I would never agree to having zero social security credits going towards my record while only in my thirties. This is awful advice.
+1

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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by celia » Fri May 29, 2020 7:45 am

Since the maximum wages that are taxed for social security in 2020 is $137,700, they can (and should) split the income equally so they can both aim to collect the maximum Social Security. If they are still working after they have paid the max for 35 years, then they can start alternating each year who gets 100% of it.

Both accountants were setting up the wife to be dependent on the husband. :oops:
Last edited by celia on Fri May 29, 2020 7:55 am, edited 1 time in total.

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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by livesoft » Fri May 29, 2020 7:54 am

Alternate years who gets the most income, so they both pay FICA each year to get SS credits, but each hit the limit every other year. Say 95% income to wife first year, 5% to husband. Or some other ratio (maybe even 50:50 LOL!)
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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by bottlecap » Fri May 29, 2020 7:57 am

I'm admittedly not an expert on social security, but my fear would be that in the event of divorce, the wife may get a raw deal.

JT

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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by Jack FFR1846 » Fri May 29, 2020 8:07 am

livesoft wrote:
Fri May 29, 2020 7:54 am
Alternate years who gets the most income, so they both pay FICA each year to get SS credits, but each hit the limit every other year. Say 95% income to wife first year, 5% to husband. Or some other ratio (maybe even 50:50 LOL!)
That is a great idea...potentially. I think the math still has to be done. I would assume (danger, Will Robinson) that the couple owns the business so pays both sides of SS taxes.

On the benefit side, if they're in their 30's now, they will be beyond the point where benefits are cut 20-25% when they start collecting. How that affects the decision.....the spread sheet knows. Do the math. For us old folks who will take benefits at today's high rates, it seems like *we* want to put in more to take out more. For them, and our kids, they're putting in more to pay us and getting less themselves.
Last edited by Jack FFR1846 on Fri May 29, 2020 8:08 am, edited 2 times in total.
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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by Broken Man 1999 » Fri May 29, 2020 8:07 am

bottlecap wrote:
Fri May 29, 2020 7:57 am
I'm admittedly not an expert on social security, but my fear would be that in the event of divorce, the wife may get a raw deal.

JT
Yeah!

If one of my daughters happened to be part of this couple there is no way in Hades I would advise them to take anything but a 50/50 split. And, I would give the same advice to a son.

Sure, like all married couples there is no chance of a split, until there is! "Until death do us part" is only a suggestion.

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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by Gill » Fri May 29, 2020 8:08 am

simplesauce wrote:
Fri May 29, 2020 7:05 am
They have the option to decide who earns the income on each sale throughout the year.
Is anyone bothered by this assumption?
Gill
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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by JoMoney » Fri May 29, 2020 8:10 am

Broken Man 1999 wrote:
Fri May 29, 2020 8:07 am
bottlecap wrote:
Fri May 29, 2020 7:57 am
I'm admittedly not an expert on social security, but my fear would be that in the event of divorce, the wife may get a raw deal.

JT
Yeah!

If one of my daughters happened to be part of this couple there is no way in Hades I would advise them to take anything but a 50/50 split. And, I would give the same advice to a son.

Sure, like all married couples there is no chance of a split, until there is! "Until death do us part" is only a suggestion.

Broken Man 1999
Why even bother getting married then :confused
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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by firebirdparts » Fri May 29, 2020 8:14 am

if the husband takes all, that would reduce the social security tax. That is significant (about $15,000 a year?) for your self-employed case. However, you have enough income for both of you to max it out. When you retire, the husband would draw the max and the wife draws max/2. If you both it max it, then you'd both draw the max. That is probably not worth it, but there is at least that tradeoff.

75/25 makes no sense at all. That sounds like somebody just spitballing. In fact her comment in italics is totally just somebody saying "here let me make up some jibber-jabber."

Alternating years would take care of the taxes, but I think it would affect your SS payout. I'm a little fuzzy on the real rules there.
Last edited by firebirdparts on Fri May 29, 2020 8:19 am, edited 1 time in total.
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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by aristotelian » Fri May 29, 2020 8:18 am

Are they considering the option to give it all to the wife?

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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by Stinky » Fri May 29, 2020 8:26 am

OP, is this your situation?

If so, which accountant are you going to keep? :D
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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by stan1 » Fri May 29, 2020 8:27 am

aristotelian wrote:
Fri May 29, 2020 8:18 am
Are they considering the option to give it all to the wife?
That was my thought too.

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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by nisiprius » Fri May 29, 2020 8:27 am

JoMoney wrote:
Fri May 29, 2020 8:10 am
...Why even bother getting married then?...
Because a gazillion things in life are easier and more equitable if you can just check the darned box.

It is so much easier to say to say at the hospital reception desk "I'm visiting my wife" than to say "I'm visiting a person, sharing my living quarters, who self-identifies as having a sexual orientation that is mutually complementary to mine" and waiting for them to talk to their supervisor. And worry how quickly the bank will let them get into the safe deposit box if "anything" happens. And whether Social Security will screw up the spousal benefit. There are many instances in which the partner has a legal right, but it requires a constant expenditure of time, effort, and money to successfully assert that right in everyday life.

In the words of a song from a 1950 musical, you get "tired of getting the fisheye from the hotel clerk."
Last edited by nisiprius on Fri May 29, 2020 8:29 am, edited 2 times in total.
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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by Broken Man 1999 » Fri May 29, 2020 8:27 am

JoMoney wrote:
Fri May 29, 2020 8:10 am
Broken Man 1999 wrote:
Fri May 29, 2020 8:07 am
bottlecap wrote:
Fri May 29, 2020 7:57 am
I'm admittedly not an expert on social security, but my fear would be that in the event of divorce, the wife may get a raw deal.

JT
Yeah!

If one of my daughters happened to be part of this couple there is no way in Hades I would advise them to take anything but a 50/50 split. And, I would give the same advice to a son.

Sure, like all married couples there is no chance of a split, until there is! "Until death do us part" is only a suggestion.

Broken Man 1999
Why even bother getting married then :confused
While OP, and most responses concern SS, think about what income decides for a moment. Mortgage Rep: Sorry, Mr/Mrs Jones. Your income is way too low to qualify for a mortgage. Mr/Mrs Jones: Oh, no. See what happened before we divorced is we took turns claiming different amounts of income to save on SS taxes. Mortgage Rep: But, you see, I have to go by what your taxes show.

SS disability: SS Rep: Same thing as above, substitute SS earnings record.

LTD: LTD rep: Same thing as above, use proof of earnings.

Too many things are directly tied to income, and if/when joint income is severed, income of individual is very important.

I think this is a very bad idea.

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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by mouses » Fri May 29, 2020 8:30 am

TheTimeLord wrote:
Fri May 29, 2020 7:19 am
simplesauce wrote:
Fri May 29, 2020 7:05 am
Here is the simple scenario:

A husband and wife work together (as Realtors,) 100% Commission-based income (1099, schedule C.) They have the option to decide who earns the income on each sale throughout the year.

Their former accountant’s strategy was to have the husband take about 75% of the commissions, and the wife take 25%. Her reason? She said “One of the things to think about is how much the wife pays under Social Security so we probably should raise some of her income in that fact because when she retires it would help her be eligible for more.”

This year, they hired a new accountant. And his strategy is the husband should collect 100% of the income, and the wife 0%. His reason? He said “The more income the wife makes, the more social security tax.“ He views this as a negative!

What are your thoughts? Thank you!
Sounds like the first accountant is looking out for the long term, the second the short term and neither for the wife's best interest in case of divorce.
Yeah, really. Husband "earns" 100%, wife earns "0%" how's that going to look in a divorce.

Why are the terms always hubby earns >=50%? Are we seeing a little gender bias here?

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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by MarkNYC » Fri May 29, 2020 8:31 am

Gill wrote:
Fri May 29, 2020 8:08 am
simplesauce wrote:
Fri May 29, 2020 7:05 am
They have the option to decide who earns the income on each sale throughout the year.
Is anyone bothered by this assumption?
Gill
Yes, it bothers me. I would like to know what provision in the law allows two taxpayers the option to retroactively decide how to divide-up earned income.

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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by retiringwhen » Fri May 29, 2020 8:34 am

livesoft wrote:
Fri May 29, 2020 7:54 am
Alternate years who gets the most income, so they both pay FICA each year to get SS credits, but each hit the limit every other year. Say 95% income to wife first year, 5% to husband. Or some other ratio (maybe even 50:50 LOL!)
If they do 90/10 (or whatever) split while swapping each year, the pair could take the net FICA tax savings for the 10% spouse and plus up their 401(K) or IRA by the tax savings.

This will allow them to diversify their retirement planning even more by adding a small marginal amount to market investment vs. Government entitlement. The more I think about it, this may be a very valuable choice and if handled thoughtfully, address spousal asset equality while optimizing taxes as well.

This is a real interesting opportunity and if I had it, I would be burning the midnight oil to optimize. The initial choices are do not even address the possibilities.

OP, if you have not seen it, the SSA has an app call AnyPIA that helps do what-if calculations related to future contributions. This is a very interesting problem with variables that people normally do not have the ability to vary. I think you should spend some time with it. It is not simple, but is very very powerful. Once you have done some what-ifs, you can use Mike Piper's Open Social Security Calculator to create essentially present value calculations for different PIA's and ages for taking Social Security. There are some nice optimizations that could be taken here.

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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by petulant » Fri May 29, 2020 8:40 am

Agree with earlier posters--a spreadsheet should be used to determine the ROI of wife making additional contributions. Depending on income, chances are the wife's contributions have a very low ROI. She will be entitled to 1/2 of the husband's social security regardless, so not only is contributing the maximum for her getting the low ROI above the second bend point, but it's half of that. Further, doing something to split the baby like contributing for wife up to first bend point is much less valuable than expected. The first bend point ends at around $900 in monthly income. The bulk of social security benefits tend to come from contributions made between the first and second bend points. Contributing up to first bend point is a toothless insurance policy. A spreadsheet can show exactly what the couple would expect to receive in the future compared to the additional self-employment tax. I suspect it will be a bad deal, so avoiding investment on wife's behalf is probably wise, per the second accountant.

It could be that the income is low enough, like ~$150,000, that splitting makes more sense to reduce husband contributions above second bend point while wife makes contributions between the first and second bend points. It's all the more important to have some serious calculations for these income levels.

Concerns about the husband and wife and equality and all that are outside the scope of this forum except for the possibility of divorce, which is a risk that should be considered. For example, husband and wife could put more income on the husband's side from the beginning because they expect wife to reduce or expand work activity for a variety of reasons in the future. The couple's household choices are not the point of this thread.

For the divorce risk, wife will still have the right to 1/2 of social security benefits in divorce, assuming she qualifies under the rules. Further, assuming state law allows it, a court will make an equitable distribution of assets upon divorce, at which point wife's attorney should argue that the social security strategy to minimize taxes has left husband with greater legal rights, so wife should be compensated with an equitably greater share of marital assets.

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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by as9 » Fri May 29, 2020 8:41 am

They should be 50/50 up to the max SS benefit. I would only consider any accounting tricks for income beyond that number.

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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by Gill » Fri May 29, 2020 8:44 am

MarkNYC wrote:
Fri May 29, 2020 8:31 am
Gill wrote:
Fri May 29, 2020 8:08 am
simplesauce wrote:
Fri May 29, 2020 7:05 am
They have the option to decide who earns the income on each sale throughout the year.
Is anyone bothered by this assumption?
Gill
Yes, it bothers me. I would like to know what provision in the law allows two taxpayers the option to retroactively decide how to divide-up earned income.
Thanks, Mark. I've been surprised everyone has just been assuming this is acceptable. OP, the tax code prevents the assignment of income to whomever you please.
Gill
Last edited by Gill on Fri May 29, 2020 8:47 am, edited 1 time in total.
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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by Broken Man 1999 » Fri May 29, 2020 8:44 am

mouses wrote:
Fri May 29, 2020 8:30 am
TheTimeLord wrote:
Fri May 29, 2020 7:19 am
simplesauce wrote:
Fri May 29, 2020 7:05 am
Here is the simple scenario:

A husband and wife work together (as Realtors,) 100% Commission-based income (1099, schedule C.) They have the option to decide who earns the income on each sale throughout the year.

Their former accountant’s strategy was to have the husband take about 75% of the commissions, and the wife take 25%. Her reason? She said “One of the things to think about is how much the wife pays under Social Security so we probably should raise some of her income in that fact because when she retires it would help her be eligible for more.”

This year, they hired a new accountant. And his strategy is the husband should collect 100% of the income, and the wife 0%. His reason? He said “The more income the wife makes, the more social security tax.“ He views this as a negative!

What are your thoughts? Thank you!
Sounds like the first accountant is looking out for the long term, the second the short term and neither for the wife's best interest in case of divorce.
Yeah, really. Husband "earns" 100%, wife earns "0%" how's that going to look in a divorce.

Why are the terms always hubby earns >=50%? Are we seeing a little gender bias here?
Having only daughters, I am probably more sensitive to this than some. Fortunately my daughters are the high earners.

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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by smitcat » Fri May 29, 2020 8:45 am

simplesauce wrote:
Fri May 29, 2020 7:05 am
Here is the simple scenario:

A husband and wife work together (as Realtors,) 100% Commission-based income (1099, schedule C.) They have the option to decide who earns the income on each sale throughout the year.

Their former accountant’s strategy was to have the husband take about 75% of the commissions, and the wife take 25%. Her reason? She said “One of the things to think about is how much the wife pays under Social Security so we probably should raise some of her income in that fact because when she retires it would help her be eligible for more.”

This year, they hired a new accountant. And his strategy is the husband should collect 100% of the income, and the wife 0%. His reason? He said “The more income the wife makes, the more social security tax.“ He views this as a negative!

Addl info:
Total income about $300k per year.
Couple is in their 30’s.

What are your thoughts? Thank you!

A few thoughts:
- what do their current individual SS accounts show for years and amounts?
- do they utilize any staff/labor?
- is the business organized as a LLC or other?
- how do these choices affect their ability to write down expenses? (advertising, auto, insurance , etc)
- how do these choices affect their ability to contribute to retirement accounts?

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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by Gill » Fri May 29, 2020 8:55 am

Has anyone noticed my post along with the concurrence of MarkNYC? IMO it renders all of this discussion moot.
Gill
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retiringwhen
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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by retiringwhen » Fri May 29, 2020 8:56 am

Gill wrote:
Fri May 29, 2020 8:44 am
Thanks, Mark. I've been surprised everyone has just been assuming this is acceptable. OP, the tax code prevents the assignment of income to whomever you please.
Gill
I am no expert, but it would seem like a real estate partnership where both are active, it would be possible to execute a legal scheme to assign sales commission to one or the other. This seems like it could be easily be done pro-actively (not retro-actively) as in you work this sale, I work that sale.... Anyway, don't let that get in the way of a good what-if exercise :-)

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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by petulant » Fri May 29, 2020 9:02 am

retiringwhen wrote:
Fri May 29, 2020 8:56 am
Gill wrote:
Fri May 29, 2020 8:44 am
Thanks, Mark. I've been surprised everyone has just been assuming this is acceptable. OP, the tax code prevents the assignment of income to whomever you please.
Gill
I am no expert, but it would seem like a real estate partnership where both are active, it would be possible to execute a legal scheme to assign sales commission to one or the other. This seems like it could be easily be done pro-actively (not retro-actively) as in you work this sale, I work that sale.... Anyway, don't let that get in the way of a good what-if exercise :-)
Yes. It might require making one spouse the owner and the other an employee with a low but reasonable rate of compensation.

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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by nigel_ht » Fri May 29, 2020 9:03 am

Gill wrote:
Fri May 29, 2020 8:44 am
MarkNYC wrote:
Fri May 29, 2020 8:31 am
Gill wrote:
Fri May 29, 2020 8:08 am
simplesauce wrote:
Fri May 29, 2020 7:05 am
They have the option to decide who earns the income on each sale throughout the year.
Is anyone bothered by this assumption?
Gill
Yes, it bothers me. I would like to know what provision in the law allows two taxpayers the option to retroactively decide how to divide-up earned income.
Thanks, Mark. I've been surprised everyone has just been assuming this is acceptable. OP, the tax code prevents the assignment of income to whomever you please.
Gill
Only one person needs to take the commission from the sale/purchase by putting only their name as the selling or buying agent.

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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by nigel_ht » Fri May 29, 2020 9:07 am

petulant wrote:
Fri May 29, 2020 9:02 am
retiringwhen wrote:
Fri May 29, 2020 8:56 am
Gill wrote:
Fri May 29, 2020 8:44 am
Thanks, Mark. I've been surprised everyone has just been assuming this is acceptable. OP, the tax code prevents the assignment of income to whomever you please.
Gill
I am no expert, but it would seem like a real estate partnership where both are active, it would be possible to execute a legal scheme to assign sales commission to one or the other. This seems like it could be easily be done pro-actively (not retro-actively) as in you work this sale, I work that sale.... Anyway, don't let that get in the way of a good what-if exercise :-)
Yes. It might require making one spouse the owner and the other an employee with a low but reasonable rate of compensation.
There's no need. One just makes fewer sales. As long as the broker doesn't care it works. Many/most agents aren't brokers. One member of the couple might be a broker and the other an agent under them. Or they might both work for a broker.

Goal33
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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by Goal33 » Fri May 29, 2020 9:30 am

Alternating years of 100/0 will have the best result
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JoMoney
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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by JoMoney » Fri May 29, 2020 9:40 am

Goal33 wrote:
Fri May 29, 2020 9:30 am
Alternating years of 100/0 will have the best result
That would minimize the amount of SS tax paid by the couple, while allowing both to earn some SS benefit, but that doesn't necessarily make it "best"... What is the couples objective? What if it was to maximize their SS benefit?
What if one of them was already past the 2nd curve in their PIA indexed earnings and only get a 15% multiple, while the other could still be getting the 32% or even 90% multiple?
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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by Svensk Anga » Fri May 29, 2020 10:00 am

Goal33 wrote:
Fri May 29, 2020 9:30 am
Alternating years of 100/0 will have the best result
I was liking the alternating years idea, but it does have a flaw. It seems like with a normal length career, both spouses would wind up with less than 35 years of SS earnings history. So both would wind up with something less than the max benefit, maybe a lot less if their prior history is poor or their careers short. Then when the first spouse dies, the survivor is left with a mediocre benefit.

alternating 100/0 is likely best as long as both are alive since it minimizes the amount of income subject to SS tax and beyond the 2nd bend point, which income has relatively poor return on the taxes paid.

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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by firebirdparts » Fri May 29, 2020 10:59 am

Svensk Anga wrote:
Fri May 29, 2020 10:00 am
I was liking the alternating years idea, but it does have a flaw. It seems like with a normal length career, both spouses would wind up with less than 35 years of SS earnings history.
I think so too.
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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by sailaway » Fri May 29, 2020 11:01 am

Wouldn't retirement accounts be an additional consideration?

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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by columbia » Fri May 29, 2020 11:06 am

celia wrote:
Fri May 29, 2020 7:45 am
Since the maximum wages that are taxed for social security in 2020 is $137,700, they can (and should) split the income equally so they can both aim to collect the maximum Social Security. If they are still working after they have paid the max for 35 years, then they can start alternating each year who gets 100% of it.

Both accountants were setting up the wife to be dependent on the husband. :oops:
And divorce happens: It clearly should be 50/50.
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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by EnjoyIt » Fri May 29, 2020 11:19 am

To minimize taxes today I would make sure there is a solo401k in place for both souses. I would trade off every year who get most of the income while the other spouse gets $28k which will be enough to max out employee portion of 401k plus a little from employer at 25% of wages and be able to pay payroll taxes. The higher earning spouse should be saving $57k into their 401k. Switch back and forth for about 24 years and both souses will have hit the 2nd bend point on SS while getting wealthy in the process. SS after the second bend point is practically useless.

This is probably the most equitable and lowest taxes paid option for the both of you.

Disclaimer: this is back of the napkin math. Do your own math for more detailed approach and for how long it needs to be done to hit the second bend point.

Disclaimer 2: I strongly believe saving taxes today and investing that money is worth a lot more than contributing to SS.
Last edited by EnjoyIt on Fri May 29, 2020 11:55 am, edited 1 time in total.
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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by JonnyB » Fri May 29, 2020 11:41 am

Gill wrote:
Fri May 29, 2020 8:08 am
simplesauce wrote:
Fri May 29, 2020 7:05 am
They have the option to decide who earns the income on each sale throughout the year.
Is anyone bothered by this assumption?
Gill
That was my first thought as well. A Qualified Joint Venture is a substitute for a partnership. A partnership requires a written declaration of partner shares, but not for a QJV. While the IRS gives guidance, for example, on allocating S-corp income between wage and dividend, I've seen nothing similar for a QJV. But allocating income arbitrarily after the fact, regardless of contribution to the business, seems fishy.

If both spouses are working for a broker, they will each receive a 1099-MISC. The numbers on each 1099 could be either spouse's social security number or a combined EIN for their joint business. How the 1099 is identified might be significant.

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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by boglewill34 » Fri May 29, 2020 11:44 am

stan1 wrote:
Fri May 29, 2020 8:27 am
aristotelian wrote:
Fri May 29, 2020 8:18 am
Are they considering the option to give it all to the wife?
That was my thought too.
Maybe someone can fill in, but for the same income levels and years contributed, do men and women get the same payments getting SS, for the same length of time?

If so, I'd say it may actually be beneficial for the wife to put in a bit more, because actuarialy she is more likely to live longer, so will collect more in actual dollar benefit from unit input to SS.

*I'm willing to be told I'm off base here, but something I'd want to look into.

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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by illumination » Fri May 29, 2020 11:46 am

In the backdrop of the divorce, the one that gets assigned "zero" every year would be the one that gets a much bigger alimony payment. At least in my state, it's needs based and the person making "nothing" can justify an alimony stream. So the person taking 100 versus 0 is probably the one that is more "vulnerable" in a divorce.

It would be hard to convince me that paying more to the payroll tax at the higher levels ends up being a net benefit later in life with Social Security payments versus other investments instead. Most analysis I've seen shows the more you pay in, the worse the payout. Disregarding any ethical issues (as I just don't know the tax code well enough to speak on that) I would think alternating every year would be the best bang for the buck.

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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by Lookingforanswers » Fri May 29, 2020 11:52 am

I think both accountants should be fired for assuming that the wife gets the short end of the bargain in either scenario. I was just checking the calendar -- is it 2020 or 1950?

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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by Nowizard » Fri May 29, 2020 12:00 pm

The guidelines about receiving the higher of a spouse's SS or your own comes into play as well, as well as other possibilities during the disbursement stages.

Tim

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Re: Two accountants disagree - Bogleheads for the tiebreaker

Post by rascott » Fri May 29, 2020 12:03 pm

Broken Man 1999 wrote:
Fri May 29, 2020 8:27 am
JoMoney wrote:
Fri May 29, 2020 8:10 am
Broken Man 1999 wrote:
Fri May 29, 2020 8:07 am
bottlecap wrote:
Fri May 29, 2020 7:57 am
I'm admittedly not an expert on social security, but my fear would be that in the event of divorce, the wife may get a raw deal.

JT
Yeah!

If one of my daughters happened to be part of this couple there is no way in Hades I would advise them to take anything but a 50/50 split. And, I would give the same advice to a son.

Sure, like all married couples there is no chance of a split, until there is! "Until death do us part" is only a suggestion.

Broken Man 1999
Why even bother getting married then :confused
While OP, and most responses concern SS, think about what income decides for a moment. Mortgage Rep: Sorry, Mr/Mrs Jones. Your income is way too low to qualify for a mortgage. Mr/Mrs Jones: Oh, no. See what happened before we divorced is we took turns claiming different amounts of income to save on SS taxes. Mortgage Rep: But, you see, I have to go by what your taxes show..

Too many things are directly tied to income, and if/when joint income is severed, income of individual is very important.

I think this is a very bad idea.

Broken Man 1999

If you are married, filing a joint return.... what is any of that going to matter?

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