Dodging Disqualification

Need Help Dodging Disqualification?

In mid-2010, the U.S. Congress came close to closing the S corporation tax loophole for some small professional service "S" corporations.

Fortunately, while the legislation (named the "American Jobs and Closing Loopholes Act) didn't end up passing the U.S. Senate, lawmakers tipped their hand about how they might choose in the future to tax some S corporations. Specifically, in the proposed law, Congress created general principles and a handful of detailed rules that disqualified certain types of small professional service businesses from benefiting from an "S" corporation.

When the law was being discussed, I wrote the "Dodging Disqualification" ebook to help businesses and their advisors think about the new law. The ebook is mostly a historial artifact given that the Senate filibustered and refused to vote on the law, but if you're interested in what almost happened, you can still purchase and read my 20pp $14.95 eBook, Dodging Disqualification

Dodging Disqualification gives you the information you would have needed to sidestep or at least minimize the impact of this painful new piece of tax legislation. The 20pp downloadable ebook describes which types of S corporations would have become "disqualified S corporations," for example. And the eBook explains how S corporation shareholders would have estimated the extra taxes paid as a result of disqualification. (Typically, the extra cost was $5,000 to $10,000 per year per shareholder--so the numbers quickly become large.)

If the "American Jobs and Closing Loopholes Act of 2010" would have become law, you would have wanted to possess a working knowledge of the issues covered in this handy publication if you owned an S corporation or advised S corporations.

Table of Contents

  • Introduction
  • How S Corporations Save Payroll Taxes
  • How the New Rule Works
    • Which Services Count as Professions?
    • Defining the Qualifier "Substantially All"
    • When is an S Corporation is Disqualified?
  • Assessing the Damage of Disqualification
  • Dodging Disqualification
    • Avoiding Disqualification by Failing the "principal asset" test
    • Avoiding Disqualification by Failing the "substantially all" test
  • Minimizing Self-employment Income from an S Corporation
    • Maximize Disqualified S Corporation Deductions
    • SEP-IRA Plans Deserve Another Look
    • Defined Benefit Pension Plans Deserve Another Look, Too
    • Minimize Non-business income within S corporation
    • Self-employed Health Insurance and Health Savings Accounts
    • Accelerate Income into 2010
    • Delay Deductions until 2011
  • Closing Comments and Caveats
  • Appendix A - Relevant Portions of H.R. 4213
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