OT-Obama helps small businesses

H.R. 4213
The tax hit affects the owners of small S corporations (a common way many
small businesses are organized) in "professional service
businesses"--doctors, lawyers, accountants, engineers, architects and so on.
An S corp pays no taxes but passes through all its profits to its owners'
tax returns, even when those profits or "distributions" are reinvested in
the business.
Professionals have long been able to reduce their tax bills by incorporating
as S corps and then receiving part of their earnings in the form of
distributions or profits, rather than taking it all as ordinary compensation
or wages. Unlike wages, profits aren't subject to payroll taxes--that is,
Social Security and Medicare taxes. It is this longstanding tax benefit that
the House has eliminated for certain small S corporations.
Note this new tax is imposed regardless of the dollars involved; it doesn't
matter if, as an S corporation owner, you had $300,000 or $30,000 in nonwage
profits--this tax will hit you.
Why is Congress raising taxes now on small-business owners? It is to offset
other items in this same bill that the House wants--not just the extension
of tax breaks but spending such as the Build America Bonds provision, which
provides $28 billion in highly subsidized bond authority to state and local
governments (with getting millions in fees). If you didn't think you were
bailing out California and New York, as well as the big banks, think again.
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Best Regards
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Thanks for the heads up. A lot to think about. This seems to apply to S corps providing "professional services". E.g., a dentist who earns $300,000 and pays himself a salary of $100,000 and takes $200,000 as a "dividend".
I own a S corporation (since 1998). While this is a one man corporation, I wonder if it is disqualified under section 413 of that bill. I could probably argue that it is not disqualified, since it does not provide professional services at all and derives income from websites and some sales of equipment, as opposed to my "professional skill and reputation".
`` any other S corporation which is 14 engaged in a professional service business 15 if the principal asset of such business is 16 the reputation and skill of 3 or fewer em- 17 ployees.''
I hate to say this, but S corps have been used to shield income from SS and Medicare taxes, which I am sure is great for their owners, but I am not sure whether it is fair to other taxpayers.
The principal value of my business organization, for me, is not in evading self employment taxes, but rather in being albe to properly take deductions for business expenses.
My recent philosophical realization is that my time is better spent making money, rather than trying to minimize taxes down to the last nickel.
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mattathayde had written this in response to
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------------------------------------- Azotic wrote:
and this is bad because?
there is always talk about fairness yet when some one steps in to make something truly more fair any one that has to take the hit gets all up in arms that the government is over reaching their powers. you cant claim justice and fairness when you refuse to allow things to be fair.
we could fix everything by just putting a vat style tax on every item you buy or service you pay for and remove all other taxes (barring maybe a luxury tax on tobacco, alcohol, junk food, etc) but then people would be up in arms about that... even though most would pay less
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IMHO the s corporation was created to allow talented people the oppertunity to create small business which employ others thru the use of tax incentives for the creator for these new jobs.
A 15% tax increase is not trivial. Consider this, if you invest the ammount you would you normally pay in ssi taxes in a private retiremaent plan the money involved becomes sigificant over a number of years. If pay the same money into ssi and you die at age 59 that money is lost to the government and your family gets nothing except a ssi death bennifit. In a private plan your surviving family will inhertit the proceeds of the private plan and pay taxes as they withdraw the money.
Funny how a incentive can become a loophole when someone wants to confiscate the fruits of your labor.
Those so called loopholes were put in place for the s corporation as an ecconomic stimulas. Think of it as your bailout. The s corporation is a wealth builder if properley used.
Best Regards Tom.
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Let's just cut the goose open and get ALL the gold!
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Maybe. But does it mean that someone who is essentially self employed (computer consultant, dentist etc) should avoid self employment taxes by calling half of his income "dividend"?
I do not think so.
I do have a stake in this, and I would much prefer to continue to be able to claim part of my income as "dividend". Additionally, I hope that I will be able to continue doing so, as I do not provide any professional services. In fact, I work relatively little in general, as the websites run by themselves. So, I think that my corp will still be qualified.
Now, if my accountant tells me that my interpretation is wrong, I will just shut up.
But, at the same time, I recognize that in some clear situations, where a corporation it just a conduit for a professional to be paid for his work hours, is not fair to let the said professional claim part of his earnings as "dividends".
I agree 100%.
This is true, with some optimistic assumptions, such as
1) I actually invest the money 2) I actually make money from investments 3) I do not lose everything due to inflation, sudden legal liability, dumb investment choices, illness etc.
As we know, most people do not save enough, those who save do not realize high investment returns, and "shit happens" very often, so people lose all they have, more frequently than they would like.
I absolutely love having a corporation and it is definitely a great way to go about conducting my money making affairs. And I like to pay myself a dividend and save on taxes this way. But I recognize that it is not fair in some cases to claim that work income is classified as dividend, even though it is against my immediate financial interest.
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