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I am all for Congress removing this as a benefit of S corps and simultaneously removing or significantly lifting the Social Security wage cap. That’s a thing I
by zrail 8y ago
I am all for Congress removing this as a benefit of S corps and simultaneously removing or significantly lifting the Social Security wage cap. That’s a thing I would vote for. Until it happens, though, people are going to continue doing this. Congress removed a similar dodge for C corps almost 80 years ago, so it can certainly be done.
S corps aren’t just used by consultants, FWIW. The structure makes a lot of sense for companies with lots of profit and more than owner employees, where the owners can justifiably claim they don’t generate all the profit from their personal services.
- tptacek 8y agoThe whole idea of "profit not generated from personal services" that are exempt from Medicare taxes is what's problematic. If you own a company and make six figures in income from it, you should be paying taxes on it as regular income. Medicare and Social Security already have a break for high-income earners --- the income limit you previously mentioned. I don't know that we really disagree about any of this; I'm just ranting. It upsets me that people think this is legitimate and exploit it, or that "Mr. Money Mustache" would promote it.
- zrail 8y agoMedicare doesn’t have the same income limit. In fact, Medicare has an additional bracket above $250k earned income. We agree that it’s not a great legal outcome. I just don’t see it as something worth getting outraged about. The number of people truly exploiting this system is very small, and the ones that are egregious get caught.
- sheeshkebab 8y agoThanks for all the comments on this - I really had no idea it would be this controversial, was just curious (and wondering whether to be more creative with corp stuff for my next project, mostly whether I grown up enough to have Inc. suffix on it, rather than LLC)