Posted on 10/25/2004 12:16:39 PM PDT by Soul_Golem
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I run a subchapter s corp. sKerry's tax increase will KILL businesses like mine.
The central feature of a sub S corporation is its pass-through nature -- the income passes through the corporation and is taxed at the individual tax-payers income tax rate.
I started my company last year and I am a subchapter S corp. I cringe when Kerry talks about his economic "plan" even though I peronally won't be a >=$200,000 company for awhile, if I ever need to grow (and hence give other people jobs) his tax ideas will slow down or eliminate alltogether my ability to do that.
In addition to the slightly simpler paperwork of doing it that way you have the fact that income is taxed only once, like it should be.
BTTT
If you elect to become an S corp, you are no longer a sole proprietor. You are one or the other not both. Taxes from an S-corp flow through to an individual's tax return in the same way a sole proprietors does and there is no corp tax paid.
Kerry's proposal that is detailed in his budget actually calls out for a reinstatement of the top two brackets. This is the biggest tool Kerry uses to cut the deficit in half. The problem is, Kerry overstates the revenues generated by about 50% and this tax will also effect people earning as little as $80K.
read later
We are a Sub S also. It works much better than a sole proprietorship, for us, anyway.
This is a bunch of bull. I'm a CPA who has many clients who are S-Corps. We work it out so that very few (if any) of them have $200K remaining in the corp to come across to the personal tax return. That is good tax planning. Does that mean the taxpayer has an AGI less than $200K? Not necessarily. What if the taxpayer (usuall both husband & wife are officers of the S-Corp) pay themselves a salary combined of $200K? What if one spouse has income of $150K from outside the corp, the S-Corp pays the other spouse $50K and another $10K comes across on the K-1 from the corp?
The bottom line is that any CPA worth their fee will reduce the S-Corp income, probably below $200K, but the AGI on many individual taxpayers' returns can still be above $200K. Kerry's tax increase is going to hit a LOT of people.
Well, that just means that your clients have smaller S corporations or they have a lot of shareholders to spread the S corporation income around so that none of them get distributed $200k. But you have to keep in mind that even if they do not get 200k, they have to add that to their other income,which could put them in the top brackets. Bottom line: it discourages people from investing when they know a lot of the return is going to push them into the top brackets that are taxed too high so that their after tax return is not good enough for the risk of the investment.
Not true -- it will also affect sole proprietorships, LLCs, etc. (Any set-up where there is pass through of income to the individual).
By the way, paying themselves 200k does not solve the problem and that is not good tax planning (it subjects all that compensation to the payroll tax). 200k of compensation is still put in the same top brackets (same as if it were a dividend from an S corp).
Bottom Line: the Kerry tax increase hurts all small businesses because the vast majority of them are paying tax on a 1040 (individual tax return as oppossed to a C corporatoin corporate tax return), and even the ones who are not in the 200k range will be taxed when they grow to the point that they are in that range. Plus, the multiplier effect (basic economics folks) of the businesses that will be hit is very big and not talked about.
Sorry Gubamyster, I misread your post. I agree that the Kerry tax increase is going to hit a lot of people and it is going to have a big negative effect on the growth of our economy. Anytime you pull money out of the private sector and put it in the public sector (the government), our GDP will be less and our standard of living will be less over the long run.
I am sub-chapter S and take a salary that is substantially less than the income of the company. The remaining after tax profit I reinvest in the company in R and D new products capital equipment, etc. The government takes their piece even though I never take the money out of the company.
Then when I sell it, the Gov. takes another piece in additional income taxes, depreciation recapture and capital gains. I don't understand why we aren't taxed only when we take out the money. I could hire more people if my silent, worthless partner( IRS) didn’t come in quarterly and take his share.
Kerry raises taxes on $200,000.00 + and I won't be able hang on the cash to pay for my customers, that average about 90 day payment terms. I make it ship it and pay all the bills and taxes before I ever get paid for the product.
I don't know why the function of the S Corporation is such a mystery to the news media? This proposed increase is a strike at the heart of small business.
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