Tuesday, October 17, 2017

SO WHAT ABOUT THE MORTGAGE INTEREST DEDUCTION

According to the cocktail napkin scribblings that is the “framework” for tax reform currently being touted by arrogant demagogue Donald T Rump, one of the very few itemized deductions that will remain will be the deduction for home mortgage interest.
 
I do believe that the deduction for acquisition debt interest (but not home equity debt interest) for a taxpayer’s primary principal residence should be kept (as well as the deduction for state and local income and property taxes).  Not to support the housing market, but as part of an attempt at “geographical equalization”.
 
What do I mean?  Americans are taxed based on income measured in pure dollars.  But the “value” of one’s level of income differs, sometimes greatly, based on one’s geographical location.  A family living in the northeast (New York, New Jersey, Massachusetts, and Connecticut) or California with an income of $150,000 may be just getting by, while a similar family that resides in “middle America” lives like royalty on $150,000. Many components of the Tax Code are indexed for inflation, but nothing is indexed for geography.
 
It costs an awful lot to live in the northeast and California. State and local income and property taxes are the highest in the country. The cost of real estate is also excessively high, and so acquisition debt is higher. As a result, one must earn a lot more money to be able to live in these states – and so salaries are arbitrarily increased to reflect the higher cost of living.  Since we pay taxes on “net income” after deductions, allowing an itemized deduction for these items would help to somewhat geographically equalize the tax burden.
 
In my opinion, the current deduction for mortgage interest – both on Schedule A and Form 6251 (Alternative Minimum Tax) is perhaps the area of the Tax Code where proper documentation and strict adherence to the law is the most overlooked (or actually ignored). 
 
Let’s take a look at the current deduction for mortgage interest.
 
“Qualified residence interest” on debt secured by a residence, aka mortgage interest, that is paid on your primary and secondary residences may be deductible on Schedule A.  But just how much can you deduct?  It depends. 
 
There are three types of qualified residence interest debt -
 
1) Grandfathered debt – debt acquired on or before October 13, 1987, that was secured by a main residence or a qualified second home.  It does matter what the proceeds of the loan were used for, as long as the debt was secured by the property.  The interest deduction is not limited.  Interest on grandfathered debt is deductible in full as mortgage interest.  
 
2) Acquisition debt - debt acquired after October 13, 1987, that was used to buy, build, or substantially improve a main residence or a qualified second home. A “substantial improvement” is one that adds value to the home, prolongs the home’s useful life, or adapts the home to new uses.  You can deduct the interest on up to $1 Million in principal ($500,000 if Married Filing Separately). Qualified acquisition debt cannot exceed the cost of the home and any substantial improvements. 
 
3) Home equity debt – debt acquired after October 13, 1987, that is secured by a main residence or a qualified second home that is not used to buy, build, or substantially improve the property.  There is no restriction or limitation on what the money can be used for; you can use it to buy a car, to pay for college, or to pay down credit card balances.  You can deduct the interest on up to $100,000 ($50,000 if married filing separately).
 
Only grandfathered debt interest and acquisition debt interest is deductible in calculating the dreaded Alternative Minimum Tax (AMT).  Home equity debt interest is NOT deductible for AMT. 
 
Taxpayers are required to keep separate track of acquisition debt and home equity debt, to make sure that the deduction on Schedule A does not include interest on debt principal that exceed the statutory maximums, and to determine what interest deduction to add back on Form 6251 when calculating Alternative Minimum Taxable Income.  However, I firmly believe that 99.5% of taxpayers do not do this.  I do not know of any taxpayer who does.  And I expect that the majority of tax preparers do not do this for their taxpayer clients.
 
The cocktail napkin scribblings do not indicate if the entire current deduction for mortgage interest – both acquisition debt and home equity debt – or the current limitations based on debt principal will be kept.
 
I have created a MORTGAGE INTEREST GUIDE.  In it I explain just about everything you need to know about deducting qualified residence interest on your Form 1040.  It includes two worksheets – one for Acquisition Debt Activity and one for Home Equity Debt activity – and a detailed example of how to use the worksheets.
 
My MORTGAGE INTEREST GUIDE is only $2.00 delivered as a pdf email attachment - or $3,00 for a print version sent via postal mail.  Order your copy by sending your check of money order payable to TAXES AND ACCOUNTING, INC, and your email or postal address, to -
 
TAXES AND ACCOUNTING, INC
MORTGAGE INTEREST GUIDE,
POST OFFICE BOX A
HAWLEY PA 18428
 
So, what are your thoughts on the deduction for mortgage interest?
 
TTFN
 
 
 

Monday, October 16, 2017

THIS JUST IN!

An important item that I missed in this morning’s BUZZ post.

According to the Social Security Administration (highlights are mine) -

Monthly Social Security and Supplemental Security Income (SSI) benefits for more than 66 million Americans will increase 2.0 percent in 2018, the Social Security Administration announced today.”

And -

. . . the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $128,700 from $127,200.”

Click here for a Fact Sheet on the 2018 changes.


























 

WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’

Very, very important – you MUST get your extended tax returns in the mail (postmarked) TODAY – even if you cannot afford to send your “uncle(s)” the total amount of any tax due!
 
A “meaty” BUZZ today.
 
* Today at THE TAX PROFESSIONAL - "The AFSP - Boon or Bust?".
 
* For those affected, ACCOUNTING TODAY has a slideshow on “Rebuilding tax records after a disaster”.
 
* Have you ever thought about becoming a professional tax preparer? If the answer is yes you should check out my book SO YOU WANT TO BE A TAX PREPARER.  Click here to read a review.  And click here to order a copy in e-book format you can read on Kindle.
 
* I have talked often about how ending the federal Estate Tax might result in the end of the step-up in basis of inherited assets, which would be a total disaster for tax preparation.    Daniel Berger suggests another result from eliminating the “death tax” in “The Unintended Consequences of Killing the Estate Tax” at TAX VOX, the blog of the Tax Policy Center -
 
But there are other considerations to repealing the estate tax. One is that many wealthy people use charitable giving while alive or through bequests to reduce or eliminate their estate tax liability. In the mid-1940s the bequests of Henry Ford’s sons made the Ford Foundation the largest philanthropy in the world, and in 2014 businessman Ralph Wilson Jr. left $1 billion to his charitable foundation. In 2015, charitable bequests amounted to around $20 billion dollars.
 
While it is not possible to know how the estate tax affected any individual bequest, nor should the generosity of these gifts be minimized, there is evidence to suggest that the existence of an estate tax does effect decisions to leave charitable bequests and increases lifetime giving.
 
The economics are relatively simple. Each dollar bequest to charity lowers the size of the taxable estates by a dollar, and reduces the amount of estate tax liability by as much as 40 cents. Eliminating the estate tax would make leaving money to charity more “expensive”, compared to current law. The same logic follows with lifetime giving. If a high-income household claims an itemized deduction for a charitable contribution on its income tax, the gift will lower its current tax bill and at the same time the contribution will reduce the amount of money that might eventually be subject to the estate tax.”
 
This is certainly something to think about when evaluating the fate of the Estate Tax.  I have not been a fan of the Estate Tax, but to be honest, at current levels it only affects at most 2 or 3 of my clients.
 
* Jeffrey Bartash tells us “Here’s how much Social Security checks could increase in 2018” at MARKET WATCH –
 
By triggering higher inflation in August and September, the storms may have boosted the expected increase in benefits in 2018 by the most in six years. The annual COLA, or cost-of-living adjustment, could be as much as 2% versus the 1.6% to 1.8% increase that seemed likely a few months ago.”
 
* FORBES.COM’s TaxGirl Kelly Phillips Erb deals with a little-understood tax form in her “Ask the TaxGirl” post “Should I Cancel A Form W-9?
 
* Kay Bell warns that “IRS e-Services is bait in new tax ID theft phishing scheme” – a scheme aimed at tax professionals.
 
Kay tells us –
 
Everyone — tax professionals and all us individual taxpayers — should be cautious when we receive any tax or financial-related unsolicited emails.”
 
I personally never “open” an email from an address I do not know.  I do sometimes miss legitimate emails from clients and their representatives whose email addresses are not familiar to me – but it is more better to miss an email than to FU your computer or open yourself up to identity theft. 
 
I also know that email addresses can often be hacked, as mine has been on occasion, so I use either the subject line as a guide to determine if I will open an email from a client, or evaluate the “body” of the actual email before clicking on any links.
 
* Kay celebrates Friday the 13th by staying on the same topic with “Friday the 13th alert: Beware these 13 tax ID theft scams”.
 
She ends the post with two important reminders –
 
Remember, tax scams don't die. Like Halloween (and TV and movie) zombies, they just keep coming back in new forms in search of more identity theft victims.
 
Remember, too, that tax crooks goblins and ID theft ghouls are out there year-round, not just in Halloween's host month of October.”
 
* Fellow tax pros – I have added a Classified Ad Page to the website THE TAX PROFESSIONAL.
 
* Oops, they did it again! Michael E. Batts reports “Court (Again) Rules Clergy Housing Allowance Exclusion Unconstitutional – Appeal Likely” at the Batts, Morrison, Wales and Lee NONPROFIT SPECIAL ALERT.
 
Peter J Reilly also discusses this development, in more detail, in “Clergy Housing Tax Break Ruled Unconstitutional – Again” at FORBES.COM.
 
How will this affect my one remaining clergy client?  In “5 Takeaways from the Clergy Housing Allowance Ruling” from MANAGING YOUR CHURCH Richard R. Hammar says (highlight is mine) -  
 
Note that a ruling by the Seventh Circuit Court of Appeals would apply to ministers in that circuit, which includes the states of Illinois, Indiana, and Wisconsin. It would become a national precedent binding on ministers in all states if affirmed by the United States Supreme Court--an unlikely outcome because the Supreme Court accepts less than 1 percent of all appeals. Note, however, that the IRS would have the discretion to follow or not follow an eventual ruling by the appeals court nationally to promote consistency in tax administration.”
 
So, this decision does not directly affect my client in Maryland yet.  But the “fat lady has not sung” yet – and there may be further developments on this issue in the future.
 
* Robert Farrington provides a primer on “What Are Qualified Expenses For A 529 Plan (And What Doesn’t Count)?” at THE COLLEGE INVESTOR.
 
His bottom line -
 
When it comes to time to actually use the money you’ve saved, be sure that you know the laws and are utilizing your 529 savings in the most efficient way possible. If you have specific questions, it never hurts to speak to an accountant that’s familiar with 529 plans.
 
Make your college savings work for you!
 
* FREE! FREE! FREE! New tax e-newsletter - TAX TOPICS.  Check it out!
 
TTFN
 
 
 
 
 

Tuesday, October 10, 2017

SOME THOUGHTS ON EMPLOYEE BUSINESS EXPENSES

While doing away with all itemized deductions except mortgage interest and charitable contributions, as it is thought the “framework” for tax reform does, would certainly simplify the Tax Code, it would, in some instances, be unfair.
 
Let’s look at the deduction for “employee business expenses”.
 
Many employers have established an “accountable” plan for reimbursing employees for these expenses.  If an employee incurs a legitimate job-related out-of-pocket expense he/she submits proof of payment to the employer and is reimbursed. 
 
However, others, especially outside commission salesmen, are not reimbursed for the expenses incurred to generate sales.  The employer pays the employee a draw and a commission based on sales volume.  The employee is expected to “eat” his out of pocket expenses, which could be extensive in terms of business miles, meals and entertaining, and promotional expenses. 
 
In the case of the reimbursed employee, his net salary is, in effect, all “in-pocket”.  In the case of the unreimbursed employee his net “in pocket” is his net salary less his unreimbursed expenses.  And the salary of the unreimbursed employee is usually higher due to the “unreimbursementness”.  The unreimbursed employee is being more highly taxed than the reimbursed employee.
 
If the commission salesman was self-employed instead of an employee he/she would be able to deduct in full all related expenses, and pay tax, income and payroll, on the true “in pocket”.
 
Currently the unreimbursed employee can claim a tax deduction for his/her expenses on Schedule A, although this is limited by the 2% of AGI exclusion for “miscellaneous” expenses.  FYI, back when I started in “the business” (early 1970s) outside salesmen could deduct unreimbursed expenses as an “Adjustment to Income”.
 
On the other hand, allowing employees a deduction for business automobile expenses that includes depreciation is perhaps excessive and unfair.
 
For the most part taxpayers who use their car for business, other than commuting, would own a car whether or not one was needed for business. The business use, however extensive, is basically secondary to personal use.  I own a car. I have always owned a car.  Although a large percentage of my current driving is business related (because since I work out of a home office I have no “commute”), I own the car primarily for personal and not business reasons, and would own a car whether it was needed for business or not.   
 
Currently the standard mileage rate for business is calculated using an annual study of fixed and variable costs of operating an automobile - including insurance, repairs and maintenance, tires, gas and oil, and depreciation. For example, the 2016 business standard mileage rate of 54 cents per mile included 24 cents allocated to depreciation.  
 
But because the main reason for purchasing a car is personal and not business, depreciating the cost of purchasing the car, based on business use, is not really a true business expense.  Only the business use percentage of actual operating expenses should be allowed as a deduction – because the more miles you drive the more you spend for gas, oil, repairs and maintenance, tires, and probably insurance.
 
So, to be more representative of the actual out of pocket business expense the 2016 standard mileage allowance should have been 30 cents per mile – the 54 cents less the 24 cents for depreciation.  This would apply on both Form 2106 and Schedule C.
 
In the case of motor vehicles used 100% in a business,  a deduction would be allowed for 100% of the actual costs of maintaining and operating the vehicle, including depreciation. In this situation perhaps the standard mileage allowance should not be allowed.
 
More stuff to think about.  So what do you think?
 
TTFN
 
 
 
 
 
 
 

Monday, October 9, 2017

WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’

An important reminder for all taxpayers –
 
Every person has a unique tax situation.  No two tax returns are the same.  Your situation is different from other taxpayers.  Not every question has the same answer for every taxpayer.  The actual correct answer to just about every tax question, except “Should I cheat?” – is “It depends”.
 
Now, on to the BUZZ.
 
* Leandra Lederman makes some very good points about the alleged “IRS Scandal”, which TAX PROF Paul Caron tells us in now in its 1600+ day (I agree with fellow blogger Peter J Reilly that the Professor has most certainly “jumped the shark” with this blog post series) in “The Real IRS Scandal” at the SURLY SUBGROUP blog -
 
The fact that IRS employees were using keywords to identify progressive as well as conservative organizations doing too much political activity to qualify under 501(c)(4) should have been clear to anyone who dug into the public documents. But it wasn’t the message that the House Oversight Committee–and thus many media stories–disseminated. The real scandal was the damage the resulting witch hunt did to the IRS.”
 
There was no IRS scandal.  IRS employees were doing their “due diligence” in investigating the organizations applying for 501(c)(4) status (organizations “for the promotion of social welfare”).  Tea party related organizations should have been closely investigated, as well as more “politically liberal” organizations, which also were.
 
The unacceptable and inappropriate act was not by the IRS, but by the idiots in Congress who continually underfund the IRS as “punishment”.  
 
* Paul D Allen explains “If It Isn't Taxable Why Do I Have to Put It on My Tax Return?” at the PIM TAX SERVICES BLOG.
 
PDA is correct when he says, “It’s important for your overall financial well-being to understand your taxes,” even if you use a tax professional to prepare your return.  I have said for years that the more informed you are on taxes the better prepared you will be when you see your preparer at tax time.  A good reason to “subscribe” to THE WANDERING TAX PRO (see upper right-hand margin).
 
* This week’s Monday post at THE TAX PROFESSIONAL asks “Is Silence Golden?”.  Be sure to return there on Wednesday for an interview with the President of NATP.
 
* Professor Annette Nellen gives us her “Tax Reform Framework Observations” at 21st CENTURY TAXATION.
 
In the post the Professor also exposes arrogant Trump’s obvious “pants on fire” lie that the “plan” does not help him personally -
 
The rate cut helps him. Also, he likely holds his vast business operations in many different types of entities including partnerships and S corporations and will benefit from the top rate of 25% on such income even after paying himself reasonable compensation. Also, if he is still carrying forward a net operating loss, repeal of the AMT helps him. And repeal of the estate tax is a tremendous tax cut for him.”
 
* Kay Bell suggests “5 things to consider in choosing workplace benefits” at DON’T MESS WITH TAXES.
 
 
She ends the post with a reminder -
 
“ . . . the IRS urges tax professionals and their clients — and all of us who do our taxes on our own, too — to assume that some tax identity thief somewhere has our personal and financial information should continue to monitor our accounts and credit reports.”
 
* FREE! FREE! FREE! New tax e-newsletter - TAX TOPICS.  Check it out!
 
* Robert W Wood deals with the issue of “Paper or E-File Your IRS Return” at FORBES.COM.
 
Most of you know that in 45 years I have never used flawed and expensive tax preparation software to prepare a tax return, and so have never electronically submitted a federal return.  It is not because I oppose electronic filing – but because I cannot do so without using software.
 
The requirement is that tax preparers must submit electronically returns that they “file”.  The word “file” in this context means “mail”.  RWW is correct when he says in the below post-
 
It’s still possible in some cases to file on paper by having your preparer give you your return for filing.”
 
I have all my clients sign a statement, which I keep with my file copy of the return, that says –
 
I do not want to file my return electronically and choose to file my return on paper forms.  My preparer will not file my return with the IRS.  I will file my paper return with the IRS myself.”
 
Before leaving for Intuit David Williams, the IRS tax-preparer regulation “czar”, specifically told me that what I was doing was ok – and that I did not have to submit my returns electronically or include the Form 8948 with each return if the client signed my statement.
 
THE LAST WORD
 
Everything I feared would happen if arrogant demagogue Donald T Rump became President has come true.
 
Every single day the idiot continues to prove that he was the worst possible candidate for President – or for any elected official.
 
TTFN
 
 
 
 
 

Wednesday, October 4, 2017

TAX RELIEF FOR HURRICANE VICTIMS

On September 29, Trump signed into law H.R. 3823, the "Disaster Tax Relief and Airport and Airway Extension Act of 2017".
 
The disaster relief component of this Act makes temporary changes to the Tax Code for individuals and businesses who were affected in –
 
* the Hurricane Harvey disaster area on or after August 23, 2017,
 
* the Hurricane Irma disaster area on or after September 4, 2017, and
 
* the Hurricane Maria disaster area on or after September 16, 2017.
 
The Act –
 
(1) eliminates the current requirement that the allowable deduction for net casualty losses from the above disasters must be reduced by 10% of Adjusted Gross Income;
 
(2) eliminates the current requirement that taxpayers must itemize deductions on Schedule A to claim a casualty loss deduction for the above disasters (the deduction will be treated as an additional Standard Deduction – and this additional deduction will be allowed in calculating the Alternative Minimum Tax);
 
(3) provides an exception to the 10-percent early retirement plan withdrawal penalty for premature distributions related to hurricane relief for the above disasters;
 
(4) allows for the re-contribution of retirement plan withdrawals for home purchases cancelled due to the above disasters;
 
(5) provides flexibility for loans from retirement plans for qualified hurricane relief for the above disasters;
 
(6) temporarily suspends the 20%, 30% and 50% limitations on charitable contribution deductions to qualified organizations associated with hurricane relief for the above disasters made before December 31, 2017;
 
(7) creates an “Employee Retention Credit” of 40% of wages (up to $6,000 per employee) paid for employers that conducted an active trade or business in the above listed disaster areas on the date of the disaster and the active trade or business for which was rendered inoperable for some period of time following the disaster; and
 
(8) allows taxpayers to use earned income from 2016 to calculate the 2017 Earned Income Tax Credit and Child Tax Credit.
 
TTFN
 
 
 
 

Tuesday, October 3, 2017

THE SPECIAL TAX RATE FOR FLOW-THROUGH ENTITIES REALLY IS A BAD IDEA

I agree with fellow tax pro and tax blogger Peter J.  Reilly, who posts at FORBES.COM “Special Rate For Flow-through Entities Is A Really Bad Idea”.
 
Peter begins by comparing the scribblings on a cocktail napkin that is the current tax “plan” with the initial presentation of tax reform proposals that eventually became the Tax Reform Act of 1986 -
 
“. . . but the elderly curmudgeon in me can't resist reflecting on how comprehensive tax reform was handled in 1986. In 1984, the Treasury issued the two volume, Tax Reform For Fairness, Simplicity, And Economic Growth (Vol. 1. Vol. 2) .  All in it was over 700 pages.  The Unified Framework is nine pages.  Only it kind of looks like the nine pages you would get if a kid were assigned a ten page paper, figured he could get away with turning in nine, but realized he didn't have even nine pages of material and thought of every possible way to stretch it.”
 
He then goes on to address one of the cocktail napkin scribblings, described in the 10-page paper as -
 
The framework limits the maximum tax rate applied to the business income of small and family-owned businesses conducted as sole proprietorships, partnerships and S corporations to 25%. The framework contemplates that the committees will adopt measures to prevent the recharacterization of personal income into business income to prevent wealthy individuals from avoiding the top personal tax rate.
 
Pete “first heard about the concept of a special rate for pass through entities about six years ago”.  His response –
 
I thought then it was one of the stupidest ideas I had ever heard, and continue to think that.”
 
As I said above I also oppose this scribbling from the Trump “framework”.  Small business earnings should not be taxed on the Form 1040 differently from salaries and other “ordinary income”.
 
I do not oppose lowering the corporate income tax rate, although I have suggested a better idea in “Something to Think About”.
 
Regular “C” corporation income is taxed twice – first at the corporate level and second when dividends are distributed to shareholders.  Lower income taxpayers pay 0% tax on “qualified” dividends, so there is some relief from double-taxation, but those with higher incomes pay 15% or 20%.  This is less than the corresponding tax rates on ordinary income, but it is still double-taxation.  Pass-through income from sub-S corporations, as well as self-employment income from partnerships and sole proprietorships, are taxed one time on the Form 1040 as ordinary income.
 
If you work for someone else, including your own C corporation, you receive a W-2 and your wages are taxed as ordinary income.  If you are self-employed, either reporting income expenses on a Schedule C or a partnership return, you do not receive a W-2 and your net income is taxed as ordinary income, and losses reduce ordinary income.
 
If you are a shareholder in a sub-S corporation you receive a W-2 for your salary, or at least should if you are actively involved, which is taxed as ordinary income, and the balance of the corporation’s net income is taxed on your Form 1040, also as ordinary income.  This is true whether or not you actually receive a distribution, the equivalent of C-corporation dividends, from the sub-S activity. 
 
The purpose of the sub-S corporation appears to be primarily to avoid the double-taxation of corporate income for small corporations (to be a sub-S corporation you cannot have more than 100 shareholders).  Before the creation of the LLC it was also a way to get some of the limited liability protection available to corporations for the self-employed, who would otherwise operate as a sole proprietor or partnership with full liability, while maintaining the tax benefits of a Schedule C or partnership.
 
Currently most sub-S corporations are “professional corporations” – those owned by licensed professionals such as attorneys, architects, engineers, accountants, physicians, etc.  Professional “C” corporations pay federal income tax on net income at a flat rate of 35%.  Pass-through income is taxed on the Form 1040 at between 10% and 39.6%, depending on the shareholder’s level of income.  Under existing tax law, the pass-through income from a sub-S professional corporation is often actually taxed at a lower rate than the C corporation flat 35% tax rate.
 
As a kind of funny aside, the IRS takes opposing positions on the “appropriateness” of the salary paid to the owner(s) of a one or few person corporation depending on whether the corporation is a “C” or an “S”.  In the case of a “C” corporation the IRS tries to say that the salary paid is too high, to create dividends that are doubly-taxed.  With a “S” corporation the IRS tries to say that salary paid is too low, to reduce the amount of net profit that is “passed-through” and avoids payroll taxes.
 
For the self-employed sole-proprietor or partner no salaries are paid to owners.  A Schedule C filer and partners pay tax at ordinary income rates on the entire net profit from the business activity – much of which is really the equivalent of W-2 earned income.  But these individuals also get a full tax deduction (although limited in certain situations due to basis and “at-risk”) for a net loss, reducing other income taxed at ordinary rates.  C corporations get to carry back or forward any net losses to reduce net income taxed at C corporation rates.
 
Taxing Schedule C and partnership and sub-S K-1 income at a lower rate could make those who work for someone else pay more tax on their earned income than those who are self-employed.  And the tax differential would most certainly disproportionately benefit higher income taxpayers – those who would be taxed on W-2 income at the new 35% rate.  It is obvious that this would result in higher income taxpayers creating pass-through entities for income that otherwise would be reported as W-2 income to avoid taxes big-time.  
 
Under my corporate tax reform proposal, which calls for a dividends-paid deduction, I would think there would be less need for sub-S corporation status.  There would be no double-taxation to be avoided, and LLC status would provide limited liability protection.
 
As a separate issue, self-employed sole-proprietors and partners are currently treated unfairly in the area of self-employment tax (the equivalent of FICA tax for employees. 
 
If you have a corporation for your self-employment activity you pay yourself a salary, on which you pay FICA tax.  You claim a corporate tax deduction for employer paid health insurance and pension contributions.  If your salary is $100,000 and your health insurance and pension deductions total $25,000 you are only paying FICA tax on $100,000.
 
If you are a sole-proprietor or partner you still get a deduction for your health insurance premiums and pension contributions, but as an “adjustment to income” reducing Form 1040 net taxable income and not as a deduction against self-employment income.  You begin calculating the self-employment tax on $125,000 of income.  So the sole-proprietor and partner will pay more FICA-equivalent self-employment tax than the corporate employee pays FICA tax on the same net income. 
 
Is all this too confusing?  Any questions?  What do you think? 
 
TTFN