Monday 14 June 2021
In my ongoing saga, to point out the danger of listening to the siren calls of the Democrat-controlled Congress saying, “Don’t worry, we’re just going to hang it on the rich. Your taxes will be left alone. ”Don’t believe them folks. Here’s another example of Congress saying one thing and then doing what they said they wouldn’t.
Have you heard of the 3.8% Net Investment Tax (NII)? It started with Obama almost 10 years ago. Currently, the NII is defined as singles with a modified adjusted gross income (MAGI) of $ 200,000 and $ 250,000 for couples. (Let me not even go into all tax law passages that discriminate against married couples. This happens to be one of them!)
Investment income is subject to this NII tax. Currently, “capital income” is mostly just taxable interest, dividends, capital gains, passive rents, annuities, license fees and similar items. The original intention was only to tax those lazy rich who live on “undeserved” income.
Now Congress is considering expanding this NII tax to include pass-through business income. B. Limited Liability Companies, Partnerships, and Sub-S Companies. If you own a business and it fits into one of these types of businesses, your net business income is not taxed at the company level, but is “passed through” to your personal tax return.
Can I really make that clear? Congress proposes an insidious back door tax on corporate income. That is “earned” income. The NII was originally supposed to only tax “not earned” income. Do you see the shameful nature of this proposal?
Small business owners are the backbone of America. Didn’t the Democrats recently promise to “Trust us. We will only tax the rich. Ordinary, hard-working Americans aren’t taxed. Only people who make $ 400,000 or more. ”Do you remember saying that over and over?
Well, that tax hike will hit married couples with $ 250,000 in MAGI. That’s almost half the promised $ 400,000 limit that was promised!
What can you do if you are a small business owner affected by this? Not much. You can pay yourself more wages to reduce the taxable income that goes from your company on your personal tax return. But that will cause your modified company deduction to go down. So if you swap a deduction for a tax, no matter what you do, your tax will increase.
There’s a “sweet spot” between lowering your business income just enough to limit that tax hike a little, but you will still have a tax hike. Welcome to the “rich” club that the Democrats have promised they will stick with it.
Do I sound like I’m picking on the Democrats too much? It will be easy for the Democrats to make me quit. They should just stop trying to use a group of Americans (in this case the “rich”) as the “bad guys” and promise that they will stick it to them, but not you. This attitude belongs in a socialist country, not in America.
Have you heard? Job 5: 2 says, “For resentment kills the stupid, and jealousy kills the simple.”
Kelly Bullis is a Certified Public Accountant based in Carson City. Contact him at 882-4459. On the Internet at BullisAndCo.com. Also on Facebook.