Tax News
Tax Hike Looms For S-Corp Owners
Congress will soon approve a bill that radically changes the tax treatment of S-Corporation profits. The new law will apply to Personal Service S-Corps and is slated to take effect in Tax Year 2011.
For TY 2010 and prior, S-Corp owners were required to pay themselves a reasonable salary
with all remaining profits flowing to them as simple income which was not subject to payroll taxes. Unfortunately, a significant number of S-Corp owners have chosen not to comply with the law. They have been receiving all of their profits as income, thus avoiding payroll taxes on the reasonable salary
that the law required them to receive. This new legislation is being enacted as a direct result of this tax evasion, with the unfortunate result that S-Corp owners who have been complying with the law will be punished along with those owners who chose not to comply.
Under the new law all profits will be subject to SECA tax. Currently, the SECA tax is 15.3 percent of the first $106,800 and 2.9 percent above that.
Examples of S-Corps whose profits will be subject to SECA tax include: Accounting, Law, Health, Consulting, Investment Management, Architecture and Performing Arts firms.
Large S-Corps, and those who aren't in professional service fields (e.g., manufacturing companies) will not be subject to the new law.
Tax Filing and Withholding for Dependents
Dependents with part-time jobs can avoid federal tax withholding if they did not owe any tax last year and do not expect to owe any for TY 2010. The income restrictions are:
- Unearned income (interest, dividends, etc.) is $300 or less
- Total income is $5,700 or less
- If unearned income is more than $300, total income cannot exceed $950.
Dependents who meet the restrictions are also not required to file a federal tax return.
Phony IRS E-mail Scam Returns
The IRS is reporting that scam artists are, once again, sending e-mails to random people, telling them they are due a refund or are under investigation. The e-mail messages direct people to a fake IRS website that asks for personal information that results in identity theft.
Rules to remember:
- Never respond to unsolicited e-mail.
- The IRS does NOT contact taxpayers via e-mail. All IRS correspondence is mailed. Never respond to an e-mail claiming to be from the IRS!
Roth IRA Conversions
Beginning in 2010 the IRS is making major changes in the rules regarding the conversion of traditional IRA's to Roth IRA's. The changes include eliminating the previous income restriction of $100,000 AGI and allowing taxpayers to split the income between 2010 and 2011.
These changes seem to make conversion appealing but the question remains: Should you convert to a Roth?
There are several Roth IRA conversion calculators available online to help you run the numbers and analyze your individual situation. However, as with most things tax-related, the devil is in the details. Please call us for a consultation prior to making any decision. We will walk you through the variables and assist you in making the decision that best fits your situation.
Important Dates
- June 15 — Quarterly Estimated Tax payments due
- June 24 — Rental Property Seminar, 6:30 pm
- July 22 — New Business Entity Seminar, 6:30 pm
Accountability News
Seminar:So, you want to be a landlord ...
June 24, 2010, 6:30 pm
Reporting rental income and expenses: An overview of tax issues related to owning rental property. This seminar targets two groups of taxpayers::
- Those who own rental property and want a better understanding of the applicable tax laws.
- Those that are thinking about purchasing rental property or renting property they already own.
Topics:
- Tax advantages of rental property, cash flow vs.net rental income
- Reporting rental income
- Depreciation deduction (and recapture)
- Recording and reporting rental expenses
- Improvements vs. repairs
- Capital gain and other tax implications when you sell rental property
- How to qualify for a loan to purchase rental property
- Tips on using a management company vs doing it yourself
Seminars will be held in our office starting at 6:30 pm. All seminars are open to the public. Seating is limited, so please email us to reserve your seat. See our Seminars page for dates and topics of additional seminars.
Seminar: Corporation, S-Corp or LLC?
Things you need to know before you decide
July 22nd, 2010, 6:30 pm
One of the most important and complex decisions a business owner faces is whether to remain a sole-proprietor or create a corporation, LLC or other entity. LLC's have also become attractive for landlords looking for liability protection.
The availability of online legal services has decreased the cost for setting up business entities and created the impression that the process is simple and straightforward.
The truth is that every year we see clients who have created tax and legal nightmares due to a lack of understanding both the initial filing process and the on-going compliance requirements.
Topics:
- Are you a good candidate?
- Which entity type best serves your needs?
- Costs vs. benefits
- Impact of recent S-Corp tax changes
- Filing: When, Where and How?
- Tax and liability advantages
- Compliance requirements
- How not to lose liability protection.
Interested? Call or email us to reserve your seat.
See you there!
— Karen Spencer
President