About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

1 Jonathan Williams & Gerald Prante, Growing Amount of Business Income Taxed by the Individual Income Tax Code 1 (2006)

handle is hein.taxfoundation/fffgxz0001 and id is 1 raw text is: r:OuU NDAT10N. May 8, 2006 Growing Amount of Business Income Taxed by the Individual Income Tax Code by Jonathan Williams and Gerald Prante Fiscal Fact No. 56 A commonly overlooked trend affecting corporate and individual tax collections has been the dramatic rise in alternative corporate structures, such as subchapter-S corporations and sole proprietorships, and the way this rise has caused business-source income to move from the corporate tax system into the individual income tax system. These business structures are now taxed under different rules than traditional C corporations, often making them more attractive to business owners who must decide which tax path to take. While S corporations are similar to ordinary C corporations in that they provide owners with such benefits as limited liability and freely transferable ownership rights, unlike C corporations, all S corporation income is taxed through the personal income tax code (using Schedules B, C, D, E, and F), not the corporate income tax code. This is important for two reasons. First, income earned through an S corporation or sole proprietorship is taxed only once-just as any regular income such as wages-whereas income earned through a C corporation is taxed twice: once through the corporate income tax, and again when investors pay individual income taxes on dividends or capital gains. Second, as the percentage of business activity conducted through S corporations and sole proprietorships increases, an increasing amount of tax will be collected through the personal income tax compared to the corporate income tax. This is difficult to see right now because corporate income tax revenue is experiencing an almost unprecedented boom, mostly a result of a strong economy. (Please see related Fiscal Fact at http :/iiwvwv.taxfouidation.orgipublications/show1478.html.) Rapid Growth in S-Corps and Sole Proprietorships Since S-corp earnings are taxed only once at the individual owner's level, the double taxation of earnings is eliminated. S corporations agree to certain limitations in exchange for this benefit, including limiting shareholders to 75 or fewer and limiting ownership to U.S. citizens and resident aliens.

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most