Have My Wife And I Been Reporting Our Business Income Incorrectly?

May 5 2017 - 9:16pm

Larry,
My wife and I run and own a business together, and I have always done our taxes at the end of the year. It seems I have been doing something wrong because I am not getting social security points added to my account but my wife is. Can I hire a CPA to fix this situation? I have been having medical issues for the past 8 years and am getting to the point that I can no longer work, my wife will continue to run the business, but I am considering applying for Disability through Social Security thus the reason for needing to get this sorted out in the short term. We have been in this business for the past 8-9 years, and I have done something wrong when filing the entire time. Am I opening myself up to a huge issue by messing with this? Should I just try and file correctly until I have enough points to file even though I technically won't be working? We would just have to pay me through the business even though I am not able to do the work any longer. Hoping a CPA can sort this out for us, and fix my mistake without getting us into a large debt with the IRS. We have paid our taxes on all of our income the whole time, so I don't feel like we have done anything monetarily wrong, I just filled incorrectly I am guessing. Thank you for any help you can be with this matter, it's greatly appreciated.

Hi,

It sounds like you have been inadvertently reporting your business income as a sole proprietorship under your wife's Social Security number. Self-employment earnings are posted to the earnings record of the person whose Social Security number appears on Schedule SE of an income tax return. Apparently, the Schedule SE's from your tax returns show your wife's SSN.

If your intent was to split the earnings from your business between you and your wife, you should have filed separate Schedule SE's. Or, you could have formed a formal partnership.

It is possible to have Social Security retroactively divide your business earnings between your earnings record and your wife's earnings record. In other words, Social Security could remove half of your wife's posted earnings from the business and add them to your earnings record. In order to make that happen, you will need to contact Social Security and explain the facts of your case to them. If they determine that you and your wife were effectively operating as a partnership, they can split the business earnings between your and your wife's earnings records (https://secure.ssa.gov/apps10/poms.nsf/lnx/0301802334).

Best, Jerry