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With the 9/15 deadline behind me and the 10/15 deadline winding down, you’ll be seeing more original content next week. I plan on continuing to write about some of the tax ramifications of buying or selling a business, but if you have a topic you’d like to discuss, just send me an email or leave a comment.
While we have a number of expiring tax provisions, we also have a few new ones. This one is courtesy of the 2010 Health Care bill (Obamacare) and it puts into place a medicare tax on unearned income which starts 1/1/2013. The tax rate is 3.8% and it’s on the lower of the persons’ net investment income or their modified adjusted gross income over a certain limit. Investment income includes interest, dividends, capital gains, annuities, royalties, rents and pass through income like income from K-1’s from S-Corporations and partnerships.
The modified AGI limits are $250,000 for married filing jointly and qualified widows or widowers, $200,000 for head of household and single tax payers and $125,000 if you file married filing separately. Finally, if you’re an employee and your salary is over those threshold amounts, you get hit with an additional medicare tax of 0.9% which brings it up to the tax on unearned income of 3.8%.
What’s interesting is they’re creeping into making S-Corporation income subject to payroll taxes. You have to be over the threshold but once you’re over, it makes the difference between a salary and a distribution a little bit less enticing.