Big Tax Hike for S corporations
One of the main advantage for forming an S corporation is about to go away.
Right now, S corporation shareholders only pay employment taxes on the wages paid. But thanks to Section 413 of HR 4213-American Jobs and Closing Tax Loopholes Act of 2010, that's about to be a thing of the past.
This provision is tucked in on page 283 of a 400+ page document. All the newscasts are focusing on the "tax extenders" which are generally pretty nice.But if you're a consultant operating as an S corporation this will have a huge impact on your tax bill.
If this bill is signed, which seems likely, effective the 2011 tax year, shareholders will have to pay the self-employment tax on his/her pro rata share of the taxable income of S corporations that engage in professional services.
Professional services is specifically defined as
any trade or business if substantially all of the activities of such trade or business involve providing services in the fields of health, law, lobbying, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, investment advice or management, or brokerage services
This bill closes the "loophole" that makes S corporations so attractive for professionals & consultants.
Stay tuned for updates...
- Linda Coleman's blog
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Thanks for the information.
Thanks for the information. I was not aware of this new regulation. I had heard about the bill but I wasn't aware of this section of the bill. Should I contact a payroll company like Paycor Chicago to see how this will affect my small business?
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Big Tax Hike for S corporations
Big Tax Hike for S corporations
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Yeah, you are right some of
Yeah, you are right some of the main advantages of forming S corp has kind of gone, now it's kind of tough to go ahead, I think everyone has a different point of view.
Chris Harris
S corporation
I wonder what kind of tax an LLC has to pay at the end of the year
This really does look like a
This really does look like a good deal for contract workers. I am a contract worker and have been looking for this sort of relief. I sure hope this goes through and makes it into law. I guess I can keep my fingers crossed.
not passed
It seems to me that the final bill passed did not contain any of the above provisions and they just ended up passing a limited bill extending unemployment benefits. Is my reading of this correct?
Not Passed
Correct, the SE tax on certain S Corp profits did not pass.
Although the House did pass the bill, the 2 senators from Maine, Olympia Snowe & Susan Collins voted No because of the S Corp provision. Therefore, this section was removed from the final bill.
So, for now, the status quo for S corp taxation remains in effect.
L:)
UPDATE: Thank you Sentors Snowe & Collins
According to a story on Politico.com, Senators Olympia Snowe & Susan Collins (both R-Maine) are holding out over the proposed changes to taxes on S corporations.
"And in a floor speech, Snowe said proposed reforms aimed at correcting abuses by S corporations were “ill-conceived” and a “terrifying template” for small-business owners...."
As a result the bill has been pulled. With less than 30 working days until the August recess it looks like we have a reprieve until Labor Day.
I think Miss Manners would say a quick thank you note is in order!
L:)
So I am somewhat confused
So I am somewhat confused about the status of HR 4213. Just saw this on SSA website
http://www.ssa.gov/legislation/legis_bulletin_052810.html
Which seems to contradict with what you wrote.
End result?
Did the proposed changes to taxes on S corporations make it into the final bill that was passed last week? I can't seem to find the answer. As someone who just formed a corporation and was planning to make an S-corp election, I am quite curious as the whether the Senators from Maine succeeded in making any changes.
not sure if this law went in
not sure if this law went in effect. But one can assume that a crafty accountant could suggest that your business be altered a bit to create a loophole for this new law. No one is "just a consultant" outsource some projects and become an entire agency overnight. true protein