Some tax issues will be resolved later this year. One involves individuals who own businesses and pay self-employment taxes. They pay 12.4 percent of their income in Social Security taxes and 2.8 percent for Medicare, but only for the first $ 142,800. This limit could be raised, making all income subject to self-employment taxes.
One strategy is for owners to convert their business from a limited liability company to a sub-chapter S corporation, which could reduce the tax on self-employment, said Edward Reitmeyer, partner in charge of tax and business services at Marcum, an accounting firm. .
But this must be done carefully. What a company S pays in distributions with the company’s own earnings is exempt from self-employment tax. But the owner of company S cannot simply make distributions for himself; he you need to receive some compensation that will be subject to self-employment tax.
“The IRS comes after you if your pay is very low,” said Reitmeyer. “But with this structure, you are at least prepared if there is a switch to unlimited self-employed income tax.”
Business and Economy
Perhaps the biggest concern this year is what will happen to the capital gains tax rate, currently 20%. Most wealth consultants are betting on an increase, probably at the same level as income tax. This is not such a big leap for most wage earners, but it would be for someone in the highest tax bracket, 37%.
How much tax you pay on the increase in the value of your shares is one of the few taxes you can control, as it depends on you when selling securities. But you need to calculate whether it makes more sense to sell bonds that have appreciated, especially after the acceleration in 2020, and pay the tax now or keep them.
Several factors come into play here. If the strategy is to keep these bonds to death and not pay capital gains tax, that tax cut could come to an end, as my column from last week pointed out. The Biden government could end the provision that sets the value of a property’s assets at the time of the owner’s death, erasing years of capital gains. Instead, the government could demand that heirs pay taxes on those gains when they sell the assets.