We typically like to focus on planning ideas here on our blog, but we feel that’s important to make Personal Service S Corp firms aware of a pending aspect of a Bill currently in Congress to reinstate a set of expired tax breaks. An addendum to the bill includes a Self-Employment tax change that will result in an increase. Firms in the following fields should be aware of this possible change: Accounting, Law, Health, Actuarial Science, Engineering, Architecture, Lobbying, Consulting, Brokerage Services, Investment Management, Sports, and Performing Arts.
Currently, owners of S Corps pay a tax on 15.3% of the first $106,800 of wages, and 2.9% on any wages above that. Any additional profits flow through to the owners’ individual income tax returns as dividends and are exempt from self-employment tax but are subject to income tax. This portion of the new legislation will end this advantage of electing an S Corp by requiring owners to pay self-employment tax on their entire profit.
In its current form, this bill only affects small (3 or fewer owners) professional service corps. The dividend pass through option still exists for owners of larger personal service S Corps, or for S Corps that aren’t in the professional service fields listed above.
If you’re an owner of a personal service S Corp, please stay apprised of this bill and how it affects your tax position.
info@mcarthurco.com
704.544.8429
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