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.
No comments:
Post a Comment