I will be posting information on the tax impact of the health care legislation as comes out.

1.  3.8% Medicare tax on investment income for taxpayers making more than $200k ($250k for families).  Beginning in 2013, the tax would be applied to investment income including interest, dividends, rents, royalties, annuities and capital gains.

One of the most popular forms of business is the S-Corporation.  Depending on your point of view, an advantage of this form of business are the flow-through characteristics meaning any residual profits or losses from the business flow-through to the shareholders’ individual tax return.  A quick way to get yourself in trouble is to deduct a disallowed flow-through loss on your personal return because of basis limitations.

What is this thing called basis?  Basis is your investment in the company.  When you incorporated, you purchased stock, this gives you basis.  If you invested additional capital or contributed assets to the corporation, this increases your basis.  If your business shows a profit, this increases your basis.  Business losses and monies taken out of the business in the form of distributions to shareholders decrease your basis.  For example, you purchase stock in your corporation for $5,000, contribute additional cash in the amount of $10,000, and your first year profit is $25,000.  Your basis in the corporation is $40,000. 

Your ability to deduct flow-through business losses is limited to the extent that you have basis, as described above.  Continuing the example, if your second year of operations results in losses of $50,000, your deduction is limited to your basis of $40,000, the remaining $10,000 becomes a suspended loss and carries forward until such time as you have reestablished sufficient basis to take the loss.

To further complicate matters, if you have personally loaned the corporation money, you have what is called debt basis.  Debt basis allows you to deduct an otherwise suspended loss.  For example, if you had also loaned your corporation $25,000, the $10,000 previously suspended loss becomes deducible because of your debt basis. 

This is a simplification of the computations that must be performed to maintain your basis.  I recommend consulting your tax professional as soon as you setup your S-Corporation to make sure you understand the tax implications of this form of business entity.

The Hiring Incentives to Restore Employment Act (HIRE Act) was signed into law on March 18, 2010.  One of the provisions of the act is to provide relief from payroll taxes during 2010 if you hire an unemployed person.  The Old Age, Survivors and Disability Insurance (OASDI) tax is being waived, a savings of 6.2% of wages paid after March 18, 2010 and before January 1, 2011.