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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.
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