IRS Wants More From S-Corporations

A disturbing recommendation from the IRS suggests that the income of S corporations should be subject to self-employment tax, as is the case with unincorporated sole proprietorships.

Fortunately, the commissioner of the IRS branch dealing with small businesses and the self-employed disagrees with this recommendation. It is far too soon to tell whether this proposal has a chance in Congress, though with the current efforts needed to increase the solvency of Social Security, any proposal that increases Social Security taxes will likely receive serious consideration.

For years we have advised individuals that using S corporations instead of sole proprietorships can save significant taxes by allowing the gain remaining inside the business to be free of self-employment taxes. The owner is required to take a 'reasonable' salary, upon which payroll taxes are paid, but the remainder of the profits can be taken as a distribution, exempt of self-employment tax. This proposal would eliminate that exemption.

We will watch this issue carefully as it progresses. You may wish to contact our federal legislative representatives and express your feelings, though this has not yet come up as a bill in Congress.

Hate Penalties? This Can Help

What You Don't Know About Paying Federal Taxes Electronically Could Cost You Money

Did you know that non-users of the Electronic Federal Tax Payment System (EFTPS) are 31 times more likely to be assessed an IRS penalty than users of EFTPS?

Why? Because taxpayers and tax professionals that use EFTPS can schedule payments in advance to avoid missing deadlines, and they can double check their work before submitting a payment.

EFTPS is a secure service provided free by the U.S. Department of the Treasury, through which taxpayers make payments by Internet or phone. More than 3 million people are already using EFTPS to their benefit. To visit EFTPS go to: http://www.eftps.com.

All businesses and especially individuals making estimated tax payments with Form 1040ES can use EFTPS to avoid penalties.

• Schedule one or even all estimated payments for the entire year up to 365 days in advance (120 days in advance if it's a business tax payment)
  
• Cancel a payment up to 48 hours before it's scheduled payment date
  
• Receive an immediate Acknowledgement Number for every payment, which is a receipt for your payment.

EFTPS uses the highest level of security; plus it's convenient, easy-to-use, exceptionally accurate...and it's free.