I face a similar predicament every year. Taxes eat up so much of my profit that it feels like I'm working for nothing sometimes.
I sat down and did the math with my accountant a while back. Between income tax, social security tax, Medicare, and state income tax over 50% of my income goes to the tax man.
The progressive tax system punishes success. The harder you work the more you pay. Doesn't seem to make a lot of sense.
I'm writing in Ron Paul. He's the only candidate that understands small business and respects the constitution.
Best,
Jeremy
Although a wealthy friend of mine once said, "The more you're paying in taxes the more successful you must be.", I don't see paying more taxes for my persistence, ingenuity, and innovation as a reward.
You're idea of allowing an S-Corp to reinvest earnings into company development is a good one. I believe you can roll over a certain amount of money from year to year as a C-Corp but you're also taxed on corporate earnings. Probably a wash.
I agree with QuitYourDayJob's comment. It's really hard to feel like your not being disadvantaged by the progressive tax system.
Considering the fact that most of our economic health is contingent on small business' success I'd think that the IRS should do more to advantage our enterprises.
Same predicament also as a small business owner. Even in a bad year I see 35% of profits go to taxes. Good years are about 50% like you said.
As I see things, both parties are big spenders and under both parties government gets bigger and takes over more of our lives. That's why the founders put into the Constitution a system of checks and balances to slow government down and make it inefficient so it would maximize individual freedom.
I feel that the creep of government intrusion (especially "progressive" taxation) is faster, though, under Democrats. I, like Jeremy, would prefer somebody who is a Constitutional purist but we don't have that choice this time. In short, I feel McCain would do businesses (and thus employees who work for businesses) significantly less harm than Obama would and so I am supporting him. At least McCain has a record for cutting wasteful spending, fighting earmarks and not punishing achievement and I admire those qualities.
I just go under my own SSN for everything & don't really think much is going to change with either candidate. In that range where the marginal fed tax is moderately high and you get hit with 100% of SS up to 120K or whatever + state + local + medicare, its over 50% but then dips down after the SS tax phases out. It's just that middle part where SS that is a real killer.
If you can do a SEP IRA, that's about 45K you can toss in a retirement account (20% of income). I tend to think one of the biggest things that could help small biz would be guaranteed health care or local, state or federal govts becoming bulk buyers of it if we want to keep the current insurance companies in there. It would be easier to start a small biz if health care wasn't an issue and it would be easier to maintain and grow one if you knew that providing it would not be an issue.
In any case I'll go Obama. I like what Ron Paul has to say on lots of things but PA will probably be close so gotta pick on or the other.
Need to use some of that end of year $$$$ to get the 40% discount - Pubcon Vegas! Gotta make up for missing CJU!
--Adam
Unfortunately, write-in votes can't be for just anyone. A candidate has to actually register to be a write-in. If they haven't, you're effectively voting for no one.
If you want someone fairly closely aligned with Ron Paul's views, I suggest you check out the Libertarian candidate Bob Barr. Fewer taxes, smaller government, more personal freedom AND he's the only candidate that opposed the Wall street bailout.
Of course, no third party candidate is going to win this election, but securing a large enough portion of the popular vote will help send a message that influences legislation. That's what we saw in the early Clinton years after Perot forced everyone to rethink things.
I wish I could go to Pubcon. I'm still on travel moratorium after three trips in Sept/Oct.
Not to correct you, but I'm pretty sure it's $102k when Social Security caps.
And yeah, maxing out SEP is a priority to keep some taxes away from Uncle Sam, but as an S-corp, the 20% is on W2 wages, not just business income. Cashing out a huge salary isn't the goal either.
102K it is - http://www.ssa.gov/pubs/10003.html' href='http://www.ssa.gov/pubs/10003.html">http://www.ssa.gov/pubs/10003.html'>http://www.ssa.gov/pubs/10003.html">http://www.ssa.gov/pubs/10003.html Keeps going up so we can pay for the cost of living adjustments for those receiving. Looks like in PA the total maxes out at less than 50% on income tax:
Income (Up to) Fed/SS/ME PA State PA Local Total
$8,025.00 25.30% 3.07% 1.00% 29.37%
$32,550.00 30.30% 3.07% 1.00% 34.37%
$78,850.00 40.30% 3.07% 1.00% 44.37%
$102,000.00 43.30% 3.07% 1.00% 47.37%
$164,550.00 30.90% 3.07% 1.00% 34.97%
$357,700.00 35.90% 3.07% 1.00% 39.97%
$357,700.00 37.90% 3.07% 1.00% 41.97%
(Think that table is right)
If the SS tax didn't kick in till some minium level of income, that would make it easier to bootstrap when starting up but then the income cap would probably have to go up dramatically for paying SS. For every 10 people who didn't pay it on the low end, there would be 1 or less that had to pay it on the high end. Dropping 40-45% on marginal income seems awfully high over $32,550 for the bootstrapping entrepreneurs out there.
If ya can manage it to come in at about $205,600 & drop 20% in the SEP, its a good sweet spot to stay in the marginal 30.9% fed.
If they just hike it for people above 250K, it shouldn't be to painful.
If all expenses can go on a rewards card, that can ad 1% - 3% of total expenses back in to the bank account or toward stuff. Adds up alot for PPC affiliates.
Well, that is a very good question. Either way it goes, we will ALL end up paying more taxes. it doesn't matter what president wins the election. Remember that hefty little "stock bailout package". Who is going to pay for that? Nothing is going to change dramatically with the new election. It will take years to get out of this jam. If they don't tax us in the first year or 2 of the election, they will in the next 4 years. There is just no way around it. Small business owners are frowned upon because they move their business to other countries, but can you really blame them? I mean really....
New Computer Technology- http://www.gadgetadvisor.com' href='http://www.gadgetadvisor.com">http://www.gadgetadvisor.com'>http://www.gadgetadvisor.com">http://www.gadgetadvisor.com
Adam, the $102K cap is one of the limits in danger under Obama. To generate additional revenue from people currently working hard and making more, one of his campaign proposals was to eliminate any kind of cap on SS deductions.
The 250K threshold also doesn't seem to be a firm floor; Biden said 150K, and in Colorado a Dem mouthpiece even said 125K.
As Obama searches for revenue sources to fund all his campaign promises, I'm not sure there will be a "good, sweet spot" left.
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This is my first political post ever, possibly my last. But there's something weighing heavy on me as a small business owner as we go into election day.
We're a growing small business. I'm proud to say that even in these uncertain times that we're not only profitable, but we're growing. In the past few weeks, we've gone from three employees to five.
Like many retail businesses, most of our profit comes in Q4. And as we approach the end of the year, we're facing the prospect of having to pay big taxes on the profits.
Now I'm ok with paying taxes. We all take our salaries and pay taxes on that. But as an S Corporation, the business profits flow to through to the owners of the company and we must pay taxes as if that profit is our income.
I don't want to take all that profit and go buy houses and cars. All I want to do is reinvest it into my company. If we could spend the profit in the next few months and get a 40% discount, I would. We spend where we can, buying stuff now that we'd be buying next year anyway. we'll buy some computers, pay for hosting a year in advance, etc.
But why can't we designate and allocate profits to be reinvested in the business? We'd be promising to spend it over the next year on hiring new employees and contractors to help us grow our business, buying services and capital equipment. All great for the economy.
Instead, profits that would help us grow our business get slashed nearly in half.
What's worse, I don't even see how I can take this to the polls tomorrow. (Not that it really matters here in Massachusetts.)
I haven't heard words from either candidate that tells me that next year I won't be in the same or worse place next Q4. (We're talking greater than $250k here.)
I'm a pretty apolitical guy. So on election-day eve, I put this out to my much more politically-minded friends and readers:
Which candidate has the best interests of the small business in mind, specifically in regards to helping us reinvest our profits?