Corporate Profits & Their Effect On Earning Limit Calculations

[DawnD585590]

I am considering semi-retiring this year. I am 62. I own a business and plan to continue working part time. My business is a LLC (files taxes as an S Corp) and I pay myself through the company. Taxes & wages are reported to the IRS via W2. I plan to pay myself personal wages meeting the maximum amount allowed, $1,770 monthly.

I plan to retain a small number of clients. These clients pay different amounts and they come and go. At the end of the year my company sometimes shows a slight profit, other times a loss. If my company shows a profit at the end of the year, even though my paychecks are within the maximum amount allowed, will this affect my SS limit calculation? In other words, are earning limit calculations based on my personal gross pay found on column 3 of my W2 (only) or are corporate profits/losses also included? 

[Tonster521]

@DawnD585590 There are various factors to consider when an S Corp. I found an easy to read and comprehend article from Collective which addresses the question, "What is an S Corp Reasonable Salary"? https://www.collective.com/blog/money-management/freelancers-guide-to-paying-yourself-a-salary-from-.... Please excuse the sales pitch in the article and focus on the info concerning the IRS and a reasonable salary. I hope the info is helpful. Good Luck.

[GailL1]

It is only earned income (W2) - your LLC income will be reported to you as investment income unless you have designated it as something else with the IRS by Form 8832.

IRS.gov - Limited Liability Company

from the link:

. . . . for purposes of employment tax and certain excise taxes, an LLC with only one member is still considered a separate entity.

Here is the rule for early SS benefits while working- 

SSA.gov Receiving Benefits While Still Working

Note the whole page cause it tells you a lot but for your specific question see the very bottom of the page:

When we figure out how much to deduct from your benefits, we count only the wages you make from your job or your net profit if you're self-employed. We include bonuses, commissions, and vacation pay. We don't count pensions, annuities, investment income, interest, veterans benefits, or other government or military retirement benefits.

SSA.gov - What Income Is Included in Your Social Security Record?

Pension payments, annuities, and the interest or dividends from your savings and investments are not earnings for Social Security purposes. You may need to pay income tax, but you do not pay Social Security taxes.

Just know those SSA limits of earnings.  Sounds like a good plan.