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Small-Business Owners: Prepare For A Tax Hike


A change in payroll taxes on small service S corporations seems likely. But there are things you can do to minimize the pain.
Owners of small businesses should prepare themselves for some big changes on the corporate tax front.
Here’s the background: The American Jobs and Closing Tax Loopholes Act (H.R. 4213) was recently approved by the U.S. House of Representatives. One provision of the bill is designed to help curb tax abuses by small business owners whose companies are organized as S corporations. The way things are currently structured, many of these small business firms have been able to avoid Social Security and Medicare taxes (“payroll taxes”) they will likely now have to pay. Congress’ Joint Committee on Taxation estimates that closing this tax loophole could generate almost $11 billion over the next 10 years. H.R. 4213 is now stalled in the Senate. But even if this loophole-closing provision isn’t adopted as part of the pending legislation, expect to see it resurface as Congress struggles for ways to cut the deficit, without harming entitlement programs such as Social Security.

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