2013 is getting closer. When it arrives there were will be some new taxes that will come with it from The Patient Protection and Affordable Act of 2010, otherwise known as Obama Care. These tax changes as with all tax changes give us an opportunity to think about the corporate structures we operate our businesses within.
Here are some things you might want to think about as we move towards 2013:
If you make more than $200,000 per year beware. If your income is above $200,00 for individuals and $250,000 for married couples there will be a Medicare surtax of .9%.
This surtax does not apply to S Corporation distributions. It does apply to W2 earnings. There is an opportunity to control taxes on how you take salary versus distributions from your company.
Unearned income for those making over $200,000 will be taxed. If you have dividends, capital gains or passive distributions and your income is over $200,000 for individuals and $250,000 for married couples you will pay a 3.8% Medicare tax.
There are two exceptions to this rule. The first is from your qualified retirement plan. The second is income from a Sub Chapter S Corporation.
This means that money coming out of your qualified plan will not be subject to the tax. The second means that excess profits that are re-invested in either an S or C Corp will not be subject to the 3.8% tax.
Think about your status as a partnership or sole proprietor for tax reasons. I’ve maintained that partnerships and sole proprietorships have been bad for tax reasons for years. You now have another reason to consider changing your tax status to one that exists in a corporation.
This is the first time I’ve ever seen S Corporations dealt with as a separate activity in the world of pass through taxation. This might show that Congress is starting to understand that private business is the driver of employment in this country.
I’m hopeful that as we head towards the expiration of the Bush tax cuts Congress remembers what they did in the health care law for private business and continues tax policy that helps this group grow and employ more people.