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    •  It won't unless you want to take it away (8+ / 0-)

      from, say, farm families. They really do need it.

      Any jackass can kick down a barn, but it takes a good carpenter to build one.--Sam Rayburn

      by Ice Blue on Wed Dec 04, 2013 at 04:17:43 PM PST

      [ Parent ]

      •  You are correct, S Corps will not be going (0+ / 0-)

        away any time soon for the small business owner.  Hillary Clinton tried to do that in 1992/1993.  She tried to make net income from an S Corp subject to SE tax to fund her health care bill.  THAT did not happen . . . it never will.

    •  there are some loophole-y things about (4+ / 0-)

      s-corps, but msdrown is flat out wrong about this.

      s-corps are naturally dying out because the anti-loophole negative tax consequences of them often outweigh the tax benefits.

      •  I don't know much about this stuff, (1+ / 0-)
        Recommended by:

        but what I read about s corps sounds like maybe all corps should be like that. I recall seeing Robert Reich propose that we do away with corporate income tax, as part of doing away with corporate personhood, and transferring the tax burden instead to the shareholders.

        Gondwana has always been at war with Laurasia.

        by AaronInSanDiego on Wed Dec 04, 2013 at 10:02:46 PM PST

        [ Parent ]

      •  Sorry, and I am not going to get into a pie fight (0+ / 0-)

        with you, but I am NOT "flat out" wrong.

        Many SMALL H/W or single owner business owners are choosing S Corp structures for many reasons.  And the new 3.8% net investment income tax will be another reason for this structure to flourish.  

        Net income from an S Corp, if the owners are materially participating, isn't subject to SE tax because by statute it isn't income from self-employment.  It is also, NOT passive income and therefore, NOT unearned income.  

        I have several very successful small S Corp clients that after paying themselves a "reasonable" salary, max out their 401(k)s, and fund their PSPs still have net income > than $250K.  That will not be subject to the 3.8% tax.

    •  as an owner in a S-Corp, I think you misunderstand (0+ / 0-)

      We're a small, local computer business. We actually end up paying more in taxes, rather than less. That's because if an S-Corp makes a profit, which we do in most years, we get what's called "phantom income" which passes to our personal tax return. That means if the company makes say, $30k in profit, we have to put $30k in income on a K-1 on our taxes. No withholding has been taken out all year so we get a big bang on tax day rather than some tax loophole you think we're getting. We don't get the money, we can't just pull $30k out of our business, but we do have to pay taxes on it. Look up phantom income, it's a real thing.

      "Watch what you say or they'll be calling you a radical, a liberal, fanatical, criminal..."-7.75, -5.54

      by solesse413 on Thu Dec 05, 2013 at 10:25:33 AM PST

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      •  adding... (0+ / 0-)

        when I say no withholding has been taken out, I mean specifically on that $30k net profit. Withholding is taken out of our regular paychecks every week, all year.

        "Watch what you say or they'll be calling you a radical, a liberal, fanatical, criminal..."-7.75, -5.54

        by solesse413 on Thu Dec 05, 2013 at 10:28:35 AM PST

        [ Parent ]

        •  Sure, I get that (1+ / 0-)
          Recommended by:
          Paul NP

          My accountant advised me to go to an S-Corp for the sole reason of getting away from the Medicare tax.

          There would be other fees and I'd lose things like my home office deduction...but that one loophole made it worth it, so she said.

          Still, I couldn't pull the trigger. Just doesn't seem right to me. There is no other reason for me, in my particular business, to do it that I can fathom.

      •  That's no different (0+ / 0-)

        than if you had a sole proprietorship or a partnership or an LLC. You pay taxes on the profit the company makes, regardless of whether you withdraw the profit. If you had a C-Corp instead of an S-Corp, you'd pay corporate taxes on that same amount. So you don't necessarily end up paying more taxes with an S-Corp. There are some differences. S-Corp income isn't subject to SE tax. Partnership or Sole Proprietorship income is. There are a handful of other differences, but overall, you probably don't pay more in taxes than other kinds of entities.

        •  didn't say it was different than those (0+ / 0-)

          just that we (and I'm sure plenty of others) don't use it as a tax avoidance scheme, which is what I took as implied by the comment I replied to. Then again, maybe I misunderstood / took the comment in a way it wasn't intended.

          When people take the home mortgage deduction or child tax credit or whatever other tax deduction is available to them, I don't see how that's not labeled a tax avoidance scheme, but somehow an S-Corp is.

          "Watch what you say or they'll be calling you a radical, a liberal, fanatical, criminal..."-7.75, -5.54

          by solesse413 on Thu Dec 05, 2013 at 11:19:11 AM PST

          [ Parent ]

          •  that's because S Corps (0+ / 0-)

            can be used in legitimate ways and can be used in illegitimate ways.

            If you claim too many kids on your return, that is tax avoidance as well.   Its just that the ways to abuse S Corps are way more subtle and grey area than that so its hard to distinguish without being super technical.

      •  Here's the thing, however (1+ / 0-)
        Recommended by:

        There is no income limit on who can be an S corp.  S corps are not by definition small businesses.   They are often closely-held businesses because there is a limit on the number of shareholders that you can have.   But that doesn't mean small.

        The rub with S Corps is that if you are actually working at your S Corp, it isn't investment income - its income from your labor.    S Corps pose an issue on how we distinguish between the two because they have dividends and pass thru taxation at the same time.

        Like most things in the tax code, there are S Corps that are real, and there are S Corps that are taking advantage.   The complexity comes when we need to draw the line between the two.

        These days, however, more and more people are moving away from S corps due to the increase in personal income tax rates while the C Corp rates stayed the same.  So for some smaller entities, C Corp status actually makes sense.  

        •  thanks for your reply (0+ / 0-)

          It's not surprising some people stretch the limits of whatever rules apply, as always, making the rest of us look bad. Hadn't thought about the dividend aspect, we just take regular weekly wages. Don't think we've ever taken a dividend, but we may have when we had partners (bought out years ago).

          I've been questioning our CPA for the last 2 tax years why we don't switch to a C corp. That in itself is annoying, he should be telling me that.

          I had it in my head somehow the C corp income tax was 32-36+%. That's true, but only at the very top end. I looked it up and at the bottom, it's like 15% on the first $50k of net profit and is on a sliding scale just like individual incomes. You'd never know that from the talking heads on the news!

          "Watch what you say or they'll be calling you a radical, a liberal, fanatical, criminal..."-7.75, -5.54

          by solesse413 on Fri Dec 06, 2013 at 09:03:32 AM PST

          [ Parent ]

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