S Corp and Social Security

[Patrick Michael]

Client and spouse are 50/50 owners of an LLC taxed as a S Corp.  They both take a reasonable salary of about $15K and have each have ordinary income of about $10K on their K-1's.  They want to start collecting social security early, so they have to keep their income under $19,560.  Any reason they couldn't gift 25% of the LLC to each of their 2 children to reduce the K-1 income and get them close to the magic number?  The children don't participate in the LLC so no need to pay them a reasonable salary.  They understand that any distributions have to be made have to be made in same proportion as ownership and the kids would have to include the income on their returns.  Is there anything else I have missed?     

[kathyc2]

The 19,560 only pertains to income subject to FICA tax, not investment income.  The 19,560 is also per person, not tax return.  

If a 15 wage/ 10 investment return split is reasonable is another matter.

[Lee B]

There are a few legitimate reasons to take social security early but we also need to make sure clients understand the reasons for delaying social security.