12 years ago
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
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.
--- news://freenews.netfront.net/ - complaints: email@example.com ---