As the push for tax reform starts to gel, the Democrats have one proposal so far that we’ve heard batted around in the past: reforming how S-Corporation owners take money out of the corporation.
Today, many S-Corp owners draw a nominal salary, and take the rest of their cash out of the company as distributions, which are not subject to Social Security, Medicare, or Unemployment taxes. This question of “reasonable compensation” has been a more frequent audit item in recent years.
The Democrats would like to see personal service S-Corps, like real estate agents, accountants, attorneys, and the like pay self-employment taxes on all of the profits of the S-Corp as long as 75% of the revenue was generated by 3 or fewer shareholders. This tax would be applied at the individual shareholder level to those with AGI on their personal return of $250,000 married filing joint, or $200,000 single. The same treatment would apply to partners in personal service partnerships.
The Republicans quashed this during the 2012 session, but it is expected to find more traction as overall tax reform is taken up early next year, especially given the desire to lower overall income tax rates, and the questionable health of the Social Security Trust Fund.
As we come out of the busy tax season, it’s now when we get to take a closer look at what’s in motion on the tax front in Washington. Here’s a quick synopsis of what we’re seeing.
- Federal Changes
- These very much depend on who comes out the winner in November, and not much is expected to be accomplished until after the election.
- Regardless of who wins, broad tax reform has been a consistent message of both parties, though with very different ideas on how that would look.
- The “AMT Patch” expired at the end of 2011. This rather technical issue is one that will have a big impact on average Americans in the 2012 year if they don’t do something about it.
We’ll keep watching for any developments and bring them to you as they come about.
As we go through our days at work and home, listening to others can become anything but a passive activity, despite its importance in all our interactions. The link below will take you to a great Harvey Mackay article on how to listen well.
http://harveymackay.com/column/listen-if-you-want-to-learn/
Make it a great day!
With all of the talk of late regarding the tax returns of the presidential candidates, we thought it might be interesting to look at the returns of a number of past presidents, vice presidents, and candidates.
Below is a link that will take you to a site which hosts tax returns from the current president and vice president, back through Richard Nixon, as well as the returns of Franklin Roosevelt.
The 1937 return of President Roosevelt is especially interesting - it’s a letter to his IRS commissioner explaining he can’t possibly determine his tax liability, and asking the service to do it for him. Though a bit blurry, still pretty entertaining.
http://www.taxhistory.org/thp/presreturns.nsf/Returns/A5959101FDF7DEEE85256E430078B2BA/$file/F_Roosevelt_1937.pdf
As the new year gets into full swing, and we begin to rev up for the coming busy season, we’re excited to bring on two new team members. We’ll be bringing them to you over the course of two blog posts.
The first is Sarah Hinz, our new director of lasting impressions. She started with us in late December, and has already been a great contributor to the team. A link to her biography on the RWR website is below.
http://www.rwrcpa.com/about_rwr/team_bios_and_directory/sarah_hinz/
