Small Business facing $11B More in Taxes Over next 10 Years

If you are a business owner operating as a small S Corporation -- this post is a must read for you!

From ABC News --

While a possible increase in taxes on the "carried interest" of hedge fund and private equity money managers is getting all the attention, in the same bill Congress is also creating a tax mess for small-business owners in the form of an $11 billion tax hike over the next 10 years.

The tax increase was included in H.R. 4213, a peddler's wagon of legislation (new spending, physicians' reimbursement, extensions of expired tax breaks, etc.) that was passed by the House in a narrow vote just before Memorial Day and is now being considered by the Senate. The Democratic-backed Senate version of the bill includes the same tax on small business.

The tax hit affects the owners of small S corporations (a common way many small businesses are organized) in "professional service businesses"--doctors, lawyers, accountants, engineers, architects and so on. An S corp pays no taxes but passes through all its profits to its owners' tax returns, even when those profits or "distributions" are reinvested in the business.

So what is a professional service business? Lawyers, accountants, doctors, dentists, architects, athletes, performing artists, consultants all will be included, according to the statute.

Note this new tax is imposed regardless of the dollars involved; it doesn't matter if, as an S corporation owner, you had $300,000 or $30,000 in nonwage profits--this tax will hit you.

Why is Congress raising taxes now on small-business owners? It is to offset other items in this same bill that the House wants--not just the extension of tax breaks but spending such as the Build America Bonds provision, which provides $28 billion in highly subsidized bond authority to state and local governments (with getting millions in fees). Read More....

And our current Congress claims they are for the little guy!