If you are self-employed, you run the risk of landing in the unfortunate situation that has burdened too many of my clients. Your business has done well and your spouse works full-time for another employer. At the end of the year, your accountant takes the income your business produced and starts chipping away at it. By the time your taxes are completed, your tax picture looks great. You can’t believe how phenomenal your accountant is; he made your income look so small compared to what you actually brought home.
This may seem great, until you become disabled. When you apply for Social Security Disability, your benefit amount is based on your income over your working lifetime. So when your accountant made your $40,000 profit look like $15,000 in income, your benefit will be based on the lower number. If your income was low for years and years because of self-employment, you may be hurting if you become disabled.
The best way to avoid this situation is to get private long-term disability insurance and always save money for emergencies. Private disability insurance policies are relatively inexpensive when compared to paying additional self-employment taxes solely for increasing a potential benefit amount. Very few people could make the argument that Social Security Disability provides a good return for the money. The value of Social Security Disability comes from the fact that it is a mandatory disability insurance program.