Some tax issues will play out later this year. One of these involves individuals who own businesses and pay the taxes on their own service. They pay 12.4 percent of their income on social security taxes and 2.8 percent for Medicare, but only for the first $ 142,800. That limit can be lifted, making all income subject to the tax on self-employment.
“One strategy is for owners to turn their limited liability company into a sub-chapter S corporation, which could reduce the tax on self-employment,” said Edward Reitmeyer, a tax and business services partner at Marcum. an accounting firm, said.
But it must be done carefully. What an S-company pays in distributions from the earnings of the company itself is exempt from tax on own service. But the owner of the S-corporation can not only issue distributions to himself; he must take some compensation that is subject to the tax on self-employment.
“The IRS comes after you if your compensation is too low,” he said. Reitmeyer said. “But with this structure, you are at least prepared if there is a change in unlimited tax on self-employment on income.”
Business and Economics
Perhaps the biggest concern for this year about what happens to the capital gains tax rate is currently 20 percent. Most wealth advisors are betting on an increase, probably at the same level as the income tax. This is not such a jump for most earners, but it is for someone in the highest tax rate, 37 percent.
How much tax you pay on the increase in the value of your shares is one of the few taxes you can control, because it depends on you when you sell securities. However, you need to calculate whether it makes more sense to sell securities that have valued, especially after the run-up to 2020, and pay the tax now or stick to it.
Several factors come into play here. If the strategy is to hold those securities until you die and not pay capital gains tax, the tax break could come to an end, as my column noted last week. The Biden administration can remove the provision that determines the value of assets in an estate at the time of the owner’s death, and wipe out years of capital gains. The administration may rather demand that heirs pay tax on the profits when they sell the assets.