

Congress wants to make Sub S shareholders pay more payroll taxes - grellas
http://www.forbes.com/2010/06/17/tax-increase-senate-hedge-funds-personal-finance-s-corp-payoll-taxes.html?boxes=Homepagelighttop

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byteCoder
As the article said, there's already a "reasonableness" test for setting a
correct salary for the work that an S Corp. owner does. If owners are still
not setting reasonable salaries for themselves (and pay the appropriate
additional employment taxes), then we need more enforcement in that area—not a
new law.

Of course, this is really just a money grab on behalf on the politicians which
affects a limited number of the (most productive) tax-paying population.

The net effect of this is that S Corps that use their retained earnings from
year-to-year to build their business (employ more people and spend money in
the private sector) now would be saddled with not only the income taxes on
that money (which they already pay), but also a 15.3% (up to the Social
Security limit) and 2.9% surtax above that.

Next, you know that Congress would love to remove that annual Social Security
limit and make all income above the Social Security limit taxable at an
additional 15.3%—for everyone.

<sarcasm>Why not? The "rich" aren't paying their "fair share." So, we need to
soak them some more.</sarcasm>

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bradleyland
What really bugs me about this legislation is who it targets. Obama's entire
campaign hinged upon a commitment to avoid imposing new taxes on the "middle
class" and going after big money hoarders who evade taxes. Those who operate
S-corps aren't the ones avoiding massive amounts of taxes. This is a backdoor
way of increasing taxes on the upper-middle-class, and it really sucks.

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hugh3
Aww, gee, well in that case I assume Obama will veto it, since in this video
he makes a "firm pledge" that "no family making less than two hundred and
fifty thousand dollars a year will see any form of tax increase":

<http://www.youtube.com/watch?v=Q8erePM8V5U>

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tptacek
This isn't a tax increase. People taking this informal tax "deduction" are
counting on the IRS never reviewing their tax returns. As it stands today, and
as it stood when Obama took office, if the IRS gave any of these shady returns
a second look, the filers would wind up in tax court.

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hugh3
I don't pretend to understand the details here, but if it's just a question of
better enforcing existing laws then why is there a bill?

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tptacek
If you don't pretend to understand the details, why do you feel comfortable
making political arguments that rely on them?

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apowell
_(C) DISQUALIFIED S CORPORATION- For purposes of this subsection, the term
‘disqualified S corporation’ means-- ......_ _(ii) any other S corporation
which is engaged in a professional service business if the principal asset of
such business is the reputation and skill of 3 or fewer employees._

This phrasing, quoted from the bill, seems open to lots of interpretation. My
business sells advertising on websites I've created. Is the principal asset of
my business my personal "reputation and skill" or is the principal asset the
websites themselves (which required my skill to build, but are distinct from
the skills themselves)?

I'd argue that my business (and others like it, which I'm sure there are many
here) doesn't fall under that description since (1) the principal asset is the
website, not me personally, and (2) even if my skill is the business's
principal asset, my personal reputation certainly is not, and the bill
stipulates "reputation and skill", not "reputation or skill".

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euroclydon
It's called HR 4213, the Senate has been debating it all week. They might pass
it today. Sen. Snowe of Maine introduced an amendment that would junk the
S-Corp dividend payroll tax. It's called S4342.

[http://www.govtrack.us/congress/amendment.xpd?session=111...](http://www.govtrack.us/congress/amendment.xpd?session=111&amdt=s4342)

<http://www.opencongress.org/bill/111-h4213/show>

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grandalf
Is it always a loophole? Can't it be legitimate some of the time?

