house bill 4213

[DaveO]

Thanks for the post. I've already written my Congress Critter.

[ChEAr$]

Does any of this HR 4213 affect the construction industry Sub S Corporations as far as the Employment Tax Treatment?

Kurly

Nope; only personal service income.

[joanmcq]

Ok, all out there...

Isn't this designed to rope in the abuse of S-corps (especially single owner S-corps providing nothing but services) to AVOID paying SS & Medicare tax on their earning? Shouldn't your 'reasonable wage' for an S-corp that would otherwise be a sole prop pretty much be the income, since there is little capital investment involved that could be construed as ROI?

Have all of you nay-sayers been using your S-corps to avoid SE tax?

[BHoffman]

Joan, how nice to have you back and hope you are feeling better.

[ChEAr$]

Ok, all out there...

Isn't this designed to rope in the abuse of S-corps (especially single owner S-corps providing nothing but services) to AVOID paying SS & Medicare tax on their earning? Shouldn't your 'reasonable wage' for an S-corp that would otherwise be a sole prop pretty much be the income, since there is little capital investment involved that could be construed as ROI?

Have all of you nay-sayers been using your S-corps to avoid SE tax?

No, it's designed to raise M O N E Y!

Avoid se tax? HAH! It's all legal and effective in that it gives me more money to spend and help grow the economy. We're talking about 11 billions of dollars here that could be better spend being plowed back into the American economy rather than be spent to bloat the government.

[BHoffman]

Do CPA's make more money because they've invested in a license? Wouldn't that excess be considered ROI?

What about reasonable salary? If salary.com says a full time CPA in public accounting in my town should earn a median salary of $60k, and I work half-time, then wouldn't my SCorp reasonable salary be $30k? Let's say I took $0 in drawings. From what I understand, the IRS considers no drawings, no officer wages, no problem. Even with profits.

This is being considered because of the utter lack of concrete guidance from IRS. The rules for officer compensation are very vague. If we knew what to do, we would do it.

[Snaggletooth]

S Corp headed for oblivion

Yes, there has been abuse to avoid SE tax.

So now, SE is going to tax profits unavailable for distribution. Already one of the big problems with an S corp is that the ENTIRETY of profits are taxed at the personal level whether the earnings are available or not. And a profitable company will need to retain its cash to invest in receivables, inventory, equipment, etc.

An S corp has profits of $100,000 and owner is taxed on same. However, out of the $100K, only $50,000 is available because the corp had to use its profits to accommodate growth in receivables, inventory, and fixed assets. So now this bill wants to add another 15.3% to the owners' tax bracket? When there is not $15,300 in cash to pay the tax?? Forget it. Shut down this S corp as fast as you can.

[ChEAr$]

Yes, there has been abuse to avoid SE tax.

So now, SE is going to tax profits unavailable for distribution. Already one of the big problems with an S corp is that the ENTIRETY of profits are taxed at the personal level whether the earnings are available or not. And a profitable company will need to retain its cash to invest in receivables, inventory, equipment, etc.

An S corp has profits of $100,000 and owner is taxed on same. However, out of the $100K, only $50,000 is available because the corp had to use its profits to accommodate growth in receivables, inventory, and fixed assets. So now this bill wants to add another 15.3% to the owners' tax bracket? When there is not $15,300 in cash to pay the tax?? Forget it. Shut down this S corp as fast as you can.

No need for that, unless the three main men are performing personal service. That's the crux of the matter here. The bill HR 4213 only applies se tax to those professionals, and not to beauty shops, barbers, hardware stores, books stores, etc which may be incorporated with S status.

[David1980]

I think this would be a good change. As it is someone that does exactly the same business can pay dramatically different tax simply by whether they file as an S-corp reporting only part of their income as wages or if they file as Schedule C. Most conversations I hear about S-corporations and the reason to file as a single member S-corporation focus entirely about minimizing SE tax.

[outwest]

And I might note..

Yes, there has been abuse to avoid SE tax.

An S corp has profits of $100,000 and owner is taxed on same. However, out of the $100K, only $50,000 is available because the corp had to use its profits to accommodate growth in receivables, inventory, and fixed assets. So now this bill wants to add another 15.3% to the owners' tax bracket? When there is not $15,300 in cash to pay the tax?? Forget it. Shut down this S corp as fast as you can.

that a Sch C would have exactly the same problem. That aside, as I understand the bill, it currently applies to personal services, your (presumed) retail example would still have the benefit of the S Corp distribution strategy.

[ChEAr$]

that a Sch C would have exactly the same problem. That aside, as I understand the bill, it currently applies to personal services, your (presumed) retail example would still have the benefit of the S Corp distribution strategy.

All this has me thinking about merging my business with that of another S corporation, a large hardware store. After all, I do tax, and he sells tacks!
Oh, and also I do his sales tax monthly.