S Corporation Tax Reform: New Deductions, IRA Eligibility, and Flexibility.
This Act significantly modernizes tax rules for S corporations, making it easier for small businesses to operate, attract investment, and manage passive income. Key changes include allowing Individual Retirement Accounts (IRAs) to hold S corporation stock and increasing the passive income threshold, providing greater operational flexibility. Furthermore, heirs of S corporation stock will benefit from a new 15-year tax deduction upon the shareholder's death.
Key points
Tax Relief for Heirs: Introduces a 15-year deduction for the "built-in gain amount" when inheriting S corporation stock, potentially lowering the tax burden for beneficiaries.
Increased Passive Income Limit: Raises the limit on passive investment income (like rents and interest) from 25% to 60%, preventing S corporations from losing their tax status due to high passive earnings.
IRAs Can Own S Corp Stock: Allows Individual Retirement Accounts (IRAs and Roth IRAs) to be eligible shareholders of S corporations, expanding investment options for retirement savings.
Simplified Employee Ownership: Treats all employees of a firm as a single shareholder for the S corporation limit, making it easier for businesses to offer stock to a wider range of staff.
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