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Business owner gets real lucky
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Q: My wife and I own a dry cleaning business. I am about to turn 62 and want to start my Social Security. So we plan to put the business in my wife's name. I will draw a small salary — about $14,000, just enough to stay under the Social Security earnings limit. The rest of the business income will go under my wife's name to help build up her Social Security account. A friend told me that in a past column, you wrote that Social Security will not allow us to do this. Can you explain this to me?

A: I don't know what you call your business, but I suggest you change the name of it to Lucky Dry Cleaners. And that's because you are one lucky fellow, at least with respect to your potential eligibility for Social Security benefits.

The Social Security Administration recently made a big policy change that's going to help you — and thousands of other self-employed business owners — qualify for Social Security retirement benefits.

The original philosophy behind Social Security was that you had to be retired in order to be eligible for Social Security retirement benefits. And "retired" initially meant not working — period. But over the years, Congress liberalized these rules. They've been revised again and again over the past several decades.

Currently, according to the rules, if you're over age 66, you can get your Social Security benefits even if you are still working full-time. And if you are under age 66, you can get reduced monthly benefits if your earnings are under a certain limit. That earnings limit is $14,460 in 2012. (In the year you turn 66, the limit goes up to $38,880.)

If someone works for wages, it's very easy to document if that person has income under the earnings limit; a simple check of his or her pay stubs or W-2 form shows exactly what he or she is making.

But it's a different story for people who run their own businesses. They are able to "play with the books" — to simply pay themselves a low salary for the sole purposes of qualifying for Social Security. Such people may not be making any real attempt to limit their involvement in the business. In other words, they aren't "retired," so they shouldn't qualify for retirement benefits.

So that is why for decades, SSA has required business owners under age 66 who were signing up for Social Security benefits to jump through quite a few more hoops than simply filling out a retirement application. They had to complete extensive questionnaires that delved into the day-to-day operations of their business. They had to provide documentation that they were cutting back on their involvement in the business. In effect, they had to prove they were retired — or at least significantly reducing the amount of time they spent in the business.

But now all that has changed. After years and years of doing such development, the government has essentially decided it's not worth the hassle. The number of staff and the administrative hours spent investigating these cases simply didn't justify the money saved by not paying Social Security benefits to those few dishonest businesspeople who were caught trying to cheat the system.

So now, when you say you are paying yourself a $14,000 salary in order to be under the Social Security earnings limit, they're simply going to assume you're reducing your involvement in your dry cleaning store to be commensurate with the money you're paying yourself.

You might feel better about getting those monthly benefits if you actually did reduce the amount of time you spent working for Lucky Dry Cleaners!

Q: Are funeral homes required by law to notify Social Security any time they become aware of a death? If not, I think it would be a very good way to help prevent fraud and abuse.

A: No, they are not required by law to do it. But many of them routinely notify Social Security using a special form the agency provides to them.

These days, the death benefit ($255), which in many cases years ago went straight to the funeral home, can now go only to a widow or widower. So undertakers and morticians no longer have any financial incentive to notify Social Security. And I'm pretty sure that if Congress tried to mandate notification, the funeral home lobby would fight it tooth and nail. And I'm pretty sure most conservatives would oppose it as one more government regulation they wouldn't like.

Besides, a much more effective fraud prevention measure is already on the books. The Social Security Administration has a computer matching operation in place with all of the state bureaus of vital statistics. If someone dies, Social Security is very likely going to learn about it, with or without the help of funeral directors.