The Who Needs Small Tax Practices Act

Call me bitter, but I’m unhappy with the new Extenders legislation. While it would extend several tax breaks, it would deal a blow to many entrepreneurs–myself included.

My practice is set up as an S Corporation. A 5% (or greater) S Corp owner must be paid a reasonable salary. He can take any additional profits as distributions. That’s exactly what I do, but perhaps not for long.

You see, the new Extenders bill would penalize businesses like me. Joe Kristan noted,

It would penalize the smallest personal service providers to the benefit of their larger competitors.. A sole proprietorship would pay taxes at a rate at least 2.9% higher than a competitor whose “principal asset” is the reputation of more than three employees.

The bill also will require businesses and the IRS to determine what the “principal asset” of a personal service corporation is. The bill obviously requires the valuation of intangible assets — reputation and skill — but in a way not elsewhere attempted in the tax law. How do you do this?

Joe notes that if I owned a building (through my business) that could be my largest asset, and that might make me exempt from this legislation.

I have a better idea: Dump this legislation. Why in the world does Congress want to penalize entrepreneurs such as myself? Could it be that larger service firms are annoyed that with the Internet smaller, more nimble competitors are driving away business? I saw that H&R Block’s business was down about 5% this past tax season.

Of course, Congress being what it is I doubt this legislation won’t pass as written. It’s stupid and penalizes people (remember the Health Care legislation?) so it’s passage is likely assured….

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