As a CPA/Tax Strategist and serial entrepreneur, I love working with business owners.  We’re in a time of a lot of flux right now and for some it means just one more day hanging on is the best win of all.  Competition is dropping and that means they’re positioned best for when it turns, and it always turns.  Others are making money hand over fist right now, taking advantage of the big opportunities.

And others are taking the chance to take advantage of the lull in business activity to busily build for what is inevitably coming.  And that next thing is a big tax attack on the business owners.  Where will it be?  Social security and Medicare taxes on Active Income.

Active income is income you earn through a trade or business.  Some of the proposals are:

(1)  Removing the Social Security wage cap. (That means all earned income will be subject to 15.3%)

(2) Removing the Social Security wage cap, but taxing the next piece at a higher rate.  (Figure 4 - 8%)

(3) Making S Corporation and Limited Partnership distributions subject to Social Security tax.

The only solution left will be to have passive income.  Passive in this case means money you don’t have to work for.  

That’s one of the things I’m working with my clients on right now - how to turn active income into passive income to create multiple streams of passive income and pay less tax.