Surprise! You and Your Business Need to Pay More Taxes – This Year!
April 15, 2012
If you’re a business owner, welcome, once again to Washington’s Target Zone. Reports released by the nonpartisan Congressional Research Service (“CRS”) in February and March, suggest that Washington needs to further target businesses that are operated as LLCs, S-Corporations, Partnerships, and Sole Proprietorships for higher taxes. These business structures, also referred to as Pass-Throughs, don’t pay corporate level taxes, but instead pay taxes on business income at the personal level. Washington believes LLCs, S-Corporations, Partnerships, and Sole Proprietorships are unfairly escaping corporate level tax.
The Congressional Research Service’s Report from February seems to indicate tax increases for business owners in 2012 are imminent:
A number of proposed and scheduled tax changes would result in pass-throughs paying higher taxes. Several lawmakers and the Obama Administration, for example, have expressed interest in taxing large pass-throughs as corporations, which would subject some pass-throughs to an additional layer of taxation. Pass-through taxation could also increase if a tax reform that includes lower corporate tax rates that are paid for by the elimination or reduction of certain business tax benefits is enacted. Additionally, the scheduled expiration of the 2001/2003 tax cuts at the end of this year could increase taxes on pass-throughs by increasing individual tax rates. Lastly, a new 3.8% tax on passive income that was enacted as part of the Health Care and Education Reconciliation Act of 2010 (HCERA, P.L. 111-152) is set to take effect in 2013.
Scheduled tax changes that could potentially affect pass-throughs include the expiration of the 2001/2003 tax cuts, later extended in 2010, that is set to occur at the end of 2012. Specifically, barring congressional action, the current individual tax rate structure of 10%, 15% 25%, 28%, 33%, and 35% will revert to 15%, 28%, 31%, 36%, and 39.6%. Since ordinary pass-through income is taxed according to individual rates, some owners of pass-through businesses would likely experience an increase in taxes owed.
The March report continues the recommendations for higher taxes and provides an easy three step “How To” process to significantly increase your taxes. Believe it or not, the Report suggested that by you paying more taxes, the amount of taxes paid by large, publically held corporations can be lowered.
What Industries are the CRS tax increase advocates targeting?
The CRS is not targeting the hedge fund companies or the big law firms, but companies in the manufacturing, wholesale/retail, mining and minerals, transportation, construction, and construction service industries.
What can you do?
Other than closing your doors, you have two options. If you’re proactive, you’ll get a strategic tax plan in place to finally get out of Washington’s Target Zone. A strategic tax plan will reduce your taxes now and provide options when the tax increases come. If you are reactive and sit back and do nothing, your options will be limited. If you like complaining versus action, just sit back and you’ll soon have a lot more to complain about.
Call us for help or with questions!
The Business Wealth Preservation Group is a professional services firm dedicated to providing superior individualized and custom service to individuals and their businesses in the areas of asset protection, tax planning, exit strategies, and wealth building. Simply put – we want to educate you on all relevant opportunities to put more dollars into your pocket, your business and your future.
We focus on leading edge, sophisticated, and safe business strategies that will help business owners structure, operate and maintain their business to take advantage of business and tax laws rather than being encumbered by them. We partner with the business, the accountant, and the attorney to ensure the business owners are capturing all available benefits that align with their business and personal goals.
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