Originally posted by jeffkrol No, no no more FACTS.......... those tax "cuts" to the 3% will create BILLIONS of high paying, benefit rich, pension packed jobs........ can't you see how it worked the last 10 years.......
NPR had a very interesting story exploring this last week.
Quote: It turns out that the expiration of the tax cuts would affect only about 2 percent of small businesses. But, most small businesses are very small — a hot dog vendor, a housecleaner, a guy selling T-shirts on eBay. They don't make anywhere near the $250,000 income threshold.
But when you look at small businesses that actually hire sizable numbers of workers — 30, 50, or 100 people — many more of those businesses would see a tax increase.
The National Association of Manufacturers says 73 percent of its member companies file taxes as individuals. Their average profit is close to $600,000. So many of them would see their taxes go up. By another measure, about 50 percent of all small-business profits would be affected by the expiration of the tax cut.
It seems like what they are talking about is s-corps, maybe it will be more attractive to re-incorporate as an LLC or regular corporation.
An interesting statistic that I once came across in a business textbook was the proportion of businesses broken down by type (Sole Proprietorship, Partnerships, Corporations) and profits in America. I can't look it up now so here are the ball parks.
Proprieterships were ~80% of businesses but reported less than 10% of all profits
Partnerships (traditionally lawyers, accountants, and doctors) were ~15% of businesses and reported ~30% of profits
Corporations were only 5% of businesses but reported ~60% of profits
Quote: No Ferraris In The Parking Lot
The vast majority of the business' profit does not go into the owners' pockets, Donnelly says. That's because they constantly need to buy new technology and equipment to stay ahead of competitors in China and around the world. Donnelly points to one giant machine after another around the factory floor, which cost $300,000 to $400,000 each.
"Well, there's your profits," Donnelly says. Carl Pasciuto agrees: "It's not like we have any Ferraris out in the parking lot."
The brothers keep far less than the $250,000 limit. But since their business' paper profit gets lumped in with their income, the business would still see a tax hike.
"It may be the difference between adding on to your workforce next year or making it smaller," Michael Pasciuto says.
Businesses like this might do much better in another form or with some tax planning, so I do wonder whether this story is accurate or whether these guys haven't consulted an accountant. I also wonder if anyone at the CBO projecting the numbers on personal income tax rates has accounted for businesses transforming their legal status in their revenue models.
These guys could easily be a corporation, pay themselves whatever salary they choose to pay themselves, and leave the retained earnings in the business at a 34% corporate tax rate up to $10 million. If they are buying $300K pieces of equipment they can either capitalize it and depreciate it over time or they can expense it. I think that increased personal taxes will definitely be a headache for some small businesses like this, but in no way will it affect them as adversely as the politicians pretend it will nor will it be as negligible as some of the liberal press pretend it will be.
In the end the people that will benefit the most from this is probably tax lawyers.
Whither Small Businesses? The Debate Over Tax Cuts : NPR