You must always pay into Social Security

March 25, 2012

See what to do when you have earned the maximum Social Security entitlement. (Hint: The answer is not to stiff Uncle Sam on his cut.)

A: Whether or not you have earned the maximum entitlement under Social Security has nothing to do with your obligation to pay into the system. The Internal Revenue Service is well aware that certain businesses distribute "profits" instead of compensation. Particularly in the case of a personal service corporation such as a medical practice, it is imperative that you take "reasonable salary as wages" for your duties. Conversely, if you have little or no active participation in the business and simply own it, there is nothing wrong with distributing profits, which would not be subject to payroll taxes.

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