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taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 392
Experience:  Licensed CPA, MA, MST with 29 year's experience. Teach Accounting and Tax courses at Masters level.
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I was recently approved for SSDI and have used my lump sum

Resolved Question:

I was recently approved for SSDI and have used my lump sum retroactive payment to start a small online business by selling products purchased via wholesale. What do I need to do to ensure I protect my SSDI benefits? What is the maximum net monthly income?

I read elsewhere online that if I am a sole-proprietor without employees, that the business will be considered SGA. If I hire someone to do business-related tasks, then, according to the info I read, the business will not be considered SGA. In this case, what is the maximum net income I can earn personally per month / per year?

Thanks.
Submitted: 10 months ago.
Category: Tax
Expert:  taxmanrog replied 10 months ago.

Welcome to Just Answers! Thank you for giving me the opportunity to assist you! I will do my best to help!

If you have a sole proprietorship of any type, it will be considered income that will reduce your monthly benefits. Even if you have employees do the work, it will still be self-employment income. The fact that a Schedule C is completed triggers the Social Security to send you a letter reducing your benefits. It is difficult to argue that you are not involved in a substantial gain activity when you are filing a Schedule C, even if employees are doing the work. The income is viewed as more than just passive by the mere fact of filing a Schedule C.

 

The best way to protect your income and not have your benefits reduced is to use an S-Corp with employees doing the work. An LLC won't work as it is considered a disregarded entity and would still reduce your benefits. An S-Corp is NOT going to reduce your benefits if you use an S-Corp and have employees do the work. The income that the S-Corp generates would be considered passive, similar to an investment, in nature. Even if you had it as an S-Corp with no employees, and drew no wages, the SSA could still say you have SGA income, as you are the one doing the work, as you have no employees. If you have employees who do the work and you collect the profits, the only SGA income would be amounts that you pay yourself as a salary or wage. You would have to keep this to a very minimum, as they consider the first $20 you receive to be exempt, and the balance is SGA income. So if you simply take dividends, and let others do the work, you won't have any problem. I actually have several clients who have used this method to keep their benefits unaffected.

 

I hope this answers your question! If you have any more, please let me know. I would be happy to clarify anything. If you have found my answer helpful, please rate me highly, I would appreciate it!

 

Thanks again! Have a great weekend!

 

Roger

Customer: replied 10 months ago.

Thank you for your helpful answer.


 


The only official paperwork I've completed so far is an EIN (sole proprietorship, no employees).


 


Whom should I consult in order to change this and pursue S-Corp?


 


Thanks.

Expert:  taxmanrog replied 10 months ago.

Let me follow up a bit more. If you own a business and are the sole worker, you are AUTOMATICALLY considered to have SGA if your business income is over $1040 per month. The SSA has two more tests that they also use. One compares what you make in your business to what other unimpaired workers in your community make on similar businesses, and the third is the worth of work test, where they see if the value of what your services to the business are worth, and if they exceed $1040 per month.


Here is a great article on SGA. http://www.nolo.com/legal-encyclopedia/disability-benefits-the-self-employed.html

You can actually form your own corporation here in Illinois, or you can have an attorney or accountant form one for you. First you would file the corporation, then you would have to make the S-corp election. To make the S-corp election, you need to file a Form 2553, usually within 75 days of the formation of the corporation, although you can file them later without too much problem and still have them accepted.

I hope this adds some clarity to the situation!

Again, thanks!

Roger

taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 392
Experience: Licensed CPA, MA, MST with 29 year's experience. Teach Accounting and Tax courses at Masters level.
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