As you probably heard, Congress was at a stalemate over the passage of the Unemployment Compensation Extension Act. It finally passed and s-corps just escaped a big tax increase. 

Millions of Americans are unemployed. The official numbers come in at about a 9.5 unemployment rate. Of course these numbers don’t count everyone that is unemployed, so the real number is more like 16.5 percent. Regardless, unemployment benefits were running out for millions and a stalemate had developed in Congress over the Unemployment Compensation Extension Act of 2010.

What was the problem? Who could be against helping out there fellow Americans during the Great Recession? Well, nobody. The problem, however, was the bill contained huge tax increases that had nothing to do with unemployment. Much of the focus was on nailing hedge fund managers to the tax cross, but there was a bigger provision that would have crushed S-corporations. 

The provision was written to eliminate tax advantaged distributions from S-corps. As things stand now, you can take part of your profit out of an S-corp as salary and part as a distribution. The advantage to this is you don’t have to pay Medicare and Social Security taxes on the distribution part. That is a rather sizeable savings and, in these times of troubles, a huge help in keeping a lot of these small businesses afloat. 

Fortunately, the provision was deleted from the bill before passage. The fact it came so close to being a law without much of anyone discussing it is very troubling. The government needs money, so we can expect the issue to be revisited in the near future. If you own an S-corporation, you will want to stay on top of developments in this area. 

So, what does all this mean to you? It means you need to start planning for higher taxes. Contact us now at (800) 341-5433 or via this contact form to learn how to avoid having Uncle Sam take all your hard earned money.