Monday, October 28, 2013

IRS Announces Subtle Sub S Change

The IRS is changing the way some Sub S shareholders are taxed. The change depends on the shareholders level of activity in the business. The IRS will now charge passive shareholders a 3.8% tax. The tax is hidden - wait for it - in the Affordable Care Act.

The IRS uses a number of factors to determine whether a shareholder is passive or active. The primary test is the number of hours the shareholder spends in the business, with 500 hours being the threshold level.

Most S corps are made up of active shareholders, so this change will have no impact. The significance to me of this changes, is the continuing trend on shareholders/owners/officers etc to document another aspect of their business.

Also lurking in the background are other changes that may be hidden in the Affordable Care Act that are not yet well publicized.

Questions - contact tax attorney Martin Cantu and the staff at