Disability Income For You And Disability Insurance For Your Business Are Two Different Issues
You need to provide coverage for both your family and your business.
For the home front: income coverage. Figure what you’ll need to cover the mortgage, cable bill, car payments, tuition and food, among other expenses.
For the business: overhead coverage. Start with payroll, rent, utilities and any equipment or vehicle leases you carry. Employee benefits and advertising are two other costs.
How do you balance both? Former president of the CDA, Barry Lundquist, recommends addressing your personal income needs first, then taking on business overhead coverage.
A Guide To Determining How Much You Can Work For Yourself Or Earn From Your Business While Still Collecting Social Security Disability Benefits
By Melissa Linebaugh, Contributing Author
Owning even a very small business can affect your eligibility for Social Security disability insurance benefits . If the Social Security Administration concludes that the work you put into your business is “substantial gainful activity,” you could lose your benefitsor you won’t qualify for benefits in the first place. Running a business includes any kind of self-employment, including providing services, like a bookkeeper, carpenter, gardener, or handyman doing contract or consulting work farming and being a landlord.
For employees, the substantial gainful activity limit is $1,310 per month in 2021. But if you’re self-employed, the SSA will use either the “countable income test” or the “three tests” to determine whether your work is considered substantial gainful activity. The test the SSA uses depends on when you start your business and why your work is being reviewed.
Determining if your self-employment will fail these tests takes some patience the rules are fairly complicated.
Transferring A Loan Vs Transferring Title
Having explained LLCs and their advantages, we now need to address an important distinction. When people talk about transferring VA loans into LLCs, theyre often conflating two separate actions.
- Transferring a loan: Transferring a loan means one person assumes the responsibilities for payment outlined in a loan contract from the original borrower. If Captain Jones secured a mortgage from Lender A, Sergeant Smith assuming that loan from Captain Jones would mean that now Sergeant Smith, not Captain Jones, is responsible for paying Lender A . This does not transfer ownership of the underlying property.
- Transferring title: A title is the legal documentation, typically in the form of a deed, stating who actually owns a property. Following the above example, if Captain Jones also transferred the title on the underlying property to Sergeant Smith, Sergeant Smith would now own the property. Transferring title does not change who is liable for paying a mortgage.
Having outlined the distinctions between transferring a loan and transferring title, its clear that, when most investors ask about transferring a VA loan to an LLC, theyre really asking about transferring the title of the underlying property to an LLC.
However, for claritys sake, well outline the considerations behind both options: 1) having an LLC assume a VA loan from an individual investor and 2) transferring the title on the underlying property from an individual to an LLC.
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Getting Help From An Attorney
Although it’s possible to start a business or start working for yourself while receiving disability, it can result in serious consequences if the SSA decides that your work is SGA and stops your benefits. It may be helpful to talk to an experienced disability attorney to discuss how even a small business can impact your benefits. Or, if Social Security already terminated your benefits due to your self-employment activity, you may want to hire a Social Security disability attorney. To find an attorney in your area who’s willing to help, fill out our disability attorney consultation form.
Read on to find out about the trial work period allowed for self-employment attempts.
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Qualifying For Social Security Benefits
Anyone born in 1929 or later needs 40 Social Security work credits, the equivalent of 10 years of work, to qualify for Social Security benefits. For every quarter that you earn at least $1,470 in 2021 , you earn one credit. The number changes annually.
Even if your business isnt particularly successful, or you only work part-time or occasionally, its not difficult to earn the Social Security credits you need. In fact, even if your earnings fall below this threshold or if your business has a loss, there are some alternative ways to earn Social Security credits. These optional methods may increase the amount of self-employment tax you owe, but theyll help you get the work credits you need.
Your eventual benefit payments do take your earnings into account. If you never earned much money from a lifetime of self-employment, dont count on getting a large Social Security check in retirement. If you started claiming benefits this year, for example, and your average monthly earnings worked out to just $800, your monthly Social Security retirement benefit would be $720assuming youre at full retirement age. Thats not much, but if you managed to get by on an average of $800 a month during your working years, you could probably work with a monthly benefit payment of $720 in retirement.
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Llc Overview And Benefits
To begin, we need to provide an overview of limited liability companies, or LLCs.
An LLC is a business structure available in the United States that establishes a legal entity separate from the actual owner or owners. This separate nature means that the individual owners hold no personal liability for the businesss debts or liabilities. For a real estate investor, this structure is appealing because of the liability shield it provides.
For example, assume Sergeant Adams personally owns 123 Main Street. If a tenant slips and falls at the property, he or she could sue Sergeant Adams and potentially receive all of Sergeant Adams personal assets as damages if successful in the suit.
Now, assume that Sergeant Adams formed 123 Main Street LLC, and this LLC purchased the property located at 123 Main Street. Now, if that same tenant was successful in a lawsuit , he or she would only be able to receive up to the total LLC assets, that is, the property located at 123 Main Street and any associated operating cash, in damages.
For real estate investors with multiple properties and personal assets, this liability protection proves appealing, which is why many investors ask about transferring properties to LLCs. Put simply, an LLC means that if you get sued as a landlord, youre only on the hook for damages up to that specific propertys value tenants cant also go after other properties, your retirement accounts, your primary residence, etc.
Disadvantages Of Having A Parent Llc And Subsidiary Llcs
So, there are some weighty reasons in favor of having multiple LLCs as parts of the same entity. However, this solution is not ideal for everyone. Multiple LLCs mean a lot more paperwork.
The costs are higher, too, since each new LLC requires a filing fee, and youll have to file a form for each. Each of them also needs to have its own bank accounts, payroll, records, and tax documents.
And even if your parent LLC is protected in case one of your subsidiaries gets sued, the protection doesnt flow both ways: If the parent LLC gets sued, creditors can go after the subsidiaries assets.
So, can an LLC own another LLC? It absolutely can, but before you decide to take a step in that direction, make sure to weigh all the pros and cons of structuring your company that way.
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Llcs Get Worse Mortgages
It is harder for an LLC to get a mortgage and the terms of the mortgage will generally be less attractive than the terms for an owner-occupied principal residence.
Many lenders don’t want to lose money if your LLC goes under so they will insist that you personally guarantee any LLC loans, credit cards, or other extensions of credit to your LLC. If you do, that renders the LLC meaningless regarding the lender being able to go after your other assets and/or income.
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Is A Health Insurance Premium Tax Deductible With Llc
Health insurance is expensive. The good news is that health insurance premiums offer a potentially substantial tax deduction for limited liability companies . If you meet the requirements, you can deduct the cost of premiums for medical, dental, and some long-term care insurance for yourself, your spouse, your dependents, and your children up to age 27, even if they are not dependents.
Alternatives To Va Loan To Llc Transfers
When real estate investors ask about transferring VA loans to LLCs, what theyre really asking is, how can I receive the liability protection afforded by an LLC?
The answer? Umbrella insurance.
Umbrella insurance helps protect your personal assets while still allowing you to keep properties in your name, thus retaining the ability to tap into further financing.
When you own a home secured by a mortgage, youre required to have a homeowners insurance policy . In addition to providing property casualty protection , these policies also provide personal liability protection, that is, protection in case someone sues you.
Umbrella insurance basically tops off the liability protection included in a homeowners policy. For example, if your homeowners policy includes $300,000 of liability protection, it means that if youre sued for up to that amount, insurance will cover it. Umbrella insurance would cover amounts above this base protection. As such, a $1,000,000 umbrella policy in this example would mean that, if sued, youd have additional protection from $300,001 all the way up to $1,000,000.
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Pension And Health Benefits
When it comes to pension and health benefits, a managing partner in an LLC participates like an employee and is covered under the LLC’s health plan and is a participant in the partnership-sponsored retirement savings plan.
LLC retirement plan options are the same as for any self-employed individual. They include SEPs, SIMPLE IRAs or a 401. As you’re both an owner and employee, if you have other employees, you have to give them the option to participate in the same plan. An investor I know created an LLC, then immediately killed it when his accountant notified him of this rule.
The LLC IRA contribution limit is currently $58,000.
If you have staff working for you, the situation is more complicated. Owner-employees can’t give themselves a retirement plan and not give other employees the same option. They must also be covered under the plan if they meet the eligibility requirements.
If you give yourself a SEP, every employee has to have the choice to sign up for one. Rules regarding contributions can vary depending on whether the LLC is for a sole proprietor, a corporation, or has employees.
Can A Llc Be Sued: Everything You Need To Know
Generally, an owner of an LLC is not legally responsible for the actions of the business. However, there are certain situations where an owner can be sued.3 min read
Can a LLC be sued? Generally, an owner of an LLC is not legally responsible for the actions of the business. Therefore, an owner cannot be sued for the obligations of the company. However, there are certain situations where an LLC owner can personally be sued for the actions of an LLC.
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Can You Own Or Run A Small Business And Collect Social Security Disability Benefits
By Melissa Linebaugh, Contributing Author
If you’ve paid self-employment taxes for many years, you’ll be eligible for Social Security disability insurance just as if you worked for an employer who pays FICA taxes on your behalf. But if you still own a business or do some type of work, Social Security will not grant you disability benefits if it considers you to be doing “substantial gainful activity” .
For wage earners, Social Security uses an earnings cutoff amount, which is $1,310 in 2021, to determine whether you’re doing SGA. But for the self-employed, Social Security knows that income is not necessarily a good measure of how much you are working. Self-employment includes freelance work, contract work, or any other work you do for a business you own.
Instead, if you are self-employed, Social Security will assess whether your work is substantial gainful activity by using either the “Countable Income Test” or the “Three Tests.” Which test Social Security uses depends on whether your initial application is being evaluated or Social Security is reviewing your work activity after you’ve been receiving benefits.
Understanding Social Security Taxes
If you work for someone else, Social Security taxes are deducted from your paycheck. The Social Security tax rate for 2021 is 6.2%, plus 1.45% for the Medicare tax. So, if your annual salary is $50,000, the amount that will go to Social Security over the course of the year is $3,100, plus $725, for a total of $3,825.
Your employer will match an additional $3,825 over the course of the year, and it will also report your Social Security wages to the government. When you retire or if you become disabled, the government uses your history of Social Security wages and tax credits to calculate the benefit payments youll receive.
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Transferring Title On A Va Loan Property To An Llc
Now that weve explained that borrowers cannot transfer their actual VA loans to LLCs, we need to explain how, if desired, they can transfer title or ownership of the underlying properties to LLCs. However, the original borrower assumes potential risk in doing so, as outlined in this section.
When an individual purchases a house, they typically receive title to that property via a general warranty deed. Without diving too far into legalese, a general warranty deed offers the highest level of protection that the deed grantor transfers his or her full and total ownership in a property to the grantee .
During a home purchase financed by a VA loan, the general warranty deed will be in the name of the individual borrower and filed with the local municipality. After the initial purchase, borrowers have the ability to transfer ownership via a quitclaim deed, which carries no warranties at all it simply transfers whatever ownership the grantor has to the grantee.
In the context of a VA loan, the individual borrower could transfer his or her ownership in the property securing the loan to an LLC by filing a quitclaim deed with the local municipality. Put simply, such a deed says that you renounce your ownership in the property and pass it on to another individual, or in this case, an LLC.
However, while you can do this, you should first consider the following risks:
Understanding Maryland Ssdi Claims: The Key Is Your Own Insurance
While many individuals who suffer from a disabling medical condition may qualify for benefits under the Social Security Disability Insurance , the complex web of laws and regulations certainly does not make the claims process easy. Around 25-30 percent of all claims are denied at the initial application stage because of the complicated legalRead More »
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Must File With The State And Pay Annual Fees
An LLC is a formal partnership arrangement that requires articles of organization to be filed with the state. It also should have an operating agreement as a practical matter.
State laws generally provide automatic “default” rules for how an LLC will be governed unless the operating agreement provides otherwise.
Specialty Specific Disability Insurance For Doctors
As a doctor, you have probably been told you need a specialty specific or an own occupation disability policy. This type of policy will pay you a benefit if you cannot perform the specific duties of your own occupation, aka your medical specialty.
A good policy will have a definition of disability along the lines of:
You are totally disabled if solely due to injury or illness you cannot perform the substantial and material duties of your occupation. Your occupation is the occupation you are in at the time of disability.
Thats it. Concise. Simple. Not ambiguous. No qualifiers. No contingencies. If you cant perform the specific job duties required to do your specific job, you are eligible to file a claim and collect benefits. How the company defines disability is the most important part of the contract.
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