The Big Tax Threat to These Stockshttp://www.fool.com/how-to-invest/personal-finance/taxes/2012/01/11/the-big-tax-threat-to-these-stocks.aspx Dan Caplinger
January 11, 2012
Nobody likes paying taxes. The only thing that makes people madder than a big tax bill is seeing big companies manage to avoid taxes. But a move to clamp down on zero-tax businesses could make victims out of regular investors like you, rather than corporate bigwigs.
A recent Wall Street Journal article highlighted an increasingly popular and totally legal way to avoid getting taxed as a corporation. But as lawmakers go through the agonizing process of trying to reform income tax laws and generate much-needed revenue, some want to take away those benefits.
Below, I'll describe in more detail the threat that investors in these entities face. But first, let's take a look at what caused the controversy in the first place.
Understanding tax pass-throughs
But some businesses have found ways to get around the corporate tax. By organizing as a pass-through entity, such as a partnership, limited liability company, or sole proprietorship, millions of business owners forgo having to pay corporate tax. Instead, all the tax liability for income the business earns passes through to its owners.
For small companies, the simplicity involved in pass-through status makes a lot of sense, and few people object to the concept as it applies to small business. Yet many much larger entities -- including quite a few public companies -- have taken advantage of it as well, and that's generating some controversy.
How to be tax-free