Congress has passed the Small Business and Work Opportunity Tax Act of 2007 (2007 Small Business Act), which eliminates gains from sales or exchanges of stock or securities as an item of passive investment income. For tax years beginning after May 25, 2007 this legislation also generally defines passive investment income as gross receipts derived from royalties, rents, dividends, interest, and annuities, subject to several exceptions.
What does this mean for your S-Corp?
This change may be in your favor when planning for future investments. The change can possibly lower the portion of your income subject to the corporate-level tax at the highest corporate tax rate applicable for excessive net passive income. Be sure to speak with your tax advisor for more information regarding the tax law changes and how the will affect your small business.
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