In my continuing saga of pointing out the danger of listening to the siren calls of the Democrat-controlled Congress who say, “Don’t worry, we’re only gonna stick it to the rich. Your taxes will be left alone.” Don’t believe them folks. Here is another example of Congress saying one thing and then moving to do the thing they said they wouldn’t.
Have you heard of the Net Investment Tax (NII) of 3.8%? It was started with Obama almost 10 years ago. Currently, the NII is defined as singles with modified adjusted gross income (MAGI) of $200,000 and $250,000 for couples. (Don’t even get me going on all the places in the tax law that discriminate against married folks. This happens to be one of them!)
Investment income is subject to this NII tax. Currently “investment income” is mostly just taxable interest, dividends, capital gains, passive rents, annuities, royalties, and similar items. The original intent was only to tax those lazy rich folks who live off “unearned” income.
Now, Congress is considering expanding this NII tax to include income from pass through business entities. Such as limited liability companies, partnerships, and sub-S corporations. If you own a business and it fits into one of these types of entities, your net business income is not taxed at the business level, but instead it is “passed through” to your personal tax return.
Can I make this really clear? Congress is proposing a sneaky back door tax on business income. That is “earned” income. The NII was originally only supposed to tax “un-earned” income. Do you see the nefarious character of this proposal?
Small business owners are the backbone of America. Didn’t the Democrats recently campaign for office on promises of “Trust us. We are only going to raise taxes on the rich. Normal, hard-working Americans will not be taxed. Only folks who make $400,000 or more.” Do you remember them saying that over and over and over again?
Well this tax increase will hit married couples with $250,000 in MAGI. That is almost HALF the promised $400,000 limit that was promised!
What can you do if you are a small business owner who will find yourself subject to this? Not much. You can pay yourself more wages to lower the taxable income flowing through from your business to your personal tax return. But that will cause your modified business deduction to go down, so trading one deduction for a tax, ends up raising your tax no matter what you do.
There is a “sweet spot” between lowering your business income just enough to limit this tax increase a bit, but you will still have a tax increase. Welcome to the “rich” club that the Democrats promised they would stick it to.
Do I sound like I’m picking on Democrats too much? It will be easy for Democrats to get me to stop. They should just stop trying to use one group of Americans (in this case, the “rich”) as the “bad guys” and promise to stick it to them, but not you. This kind of attitude belongs in a socialist country, not America.
Have you heard? Job 5:2 says, “For resentment kills the foolish man, and jealousy kills the simple.”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com. Also on Facebook.
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