Comments - Letter to a Relative...why we need the Fairtax NOW - Fair Tax Nation2024-03-28T13:28:07Zhttp://www.fairtaxnation.com/profiles/comment/feed?attachedTo=2636007%3ABlogPost%3A27880&xn_auth=noLet me try to clarify how tax…tag:www.fairtaxnation.com,2009-03-03:2636007:Comment:286032009-03-03T01:14:00.738ZPat Conroyhttp://www.fairtaxnation.com/profile/PatConroy
Let me try to clarify how taxes are paid by small businesses. It can be complicated because there are some fairly "large" small businesses. The SBA defines small businesses as generally having fewer than 500 employees. For the purposes of describing how small businesses are taxed, lets use the example of a small business with 32 employees including one owner, $4MM in gross revenues, and $600K in net profit.<br />
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However the business is organized (sole proprietorship, partnership, C corp, S corp,…
Let me try to clarify how taxes are paid by small businesses. It can be complicated because there are some fairly "large" small businesses. The SBA defines small businesses as generally having fewer than 500 employees. For the purposes of describing how small businesses are taxed, lets use the example of a small business with 32 employees including one owner, $4MM in gross revenues, and $600K in net profit.<br />
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However the business is organized (sole proprietorship, partnership, C corp, S corp, LLC, LLP, etc.) the net profit of the business is passed through to the owner(s) as income, regardless of whether the owner actually receives any of the net income. (Brenda: in your example above, income tax would not be due on the $250K gross -- only on whatever net profit is generated).<br />
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Small businesses pay a lot of different taxes including payroll taxes, property taxes, state taxes such as income and gross receipts taxes, etc. In terms of federal income tax, in the example above, if the owner receives a salary of $100K, then, simplifying, his/her adjusted gross income would be $700K and the taxes due would be roughly 33% or $231,000 (not all is taxed at the top marginal rate).<br />
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Some would say that's fair. Here's the problem: Every business needs working capital, even small businesses. That's how most jobs are created. In this example, the owner received a salary of $100K but has to pay $231K in taxes. Where does that $231K come from? The owner has to withdraw it from what would normally be working capital (the $600K net profit of the business).<br />
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Now, it's true that the owner could actually draw down and spend the entire $600K, but any small business owner who did this would not stay in business long. What happens is that the government, in effect, taxes small business working capital. The owner should only be taxed on what he/she takes out of the business for personal use.<br />
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Of course, a much better approach is the FairTax. Then taxes wouldn't be so complicated. Well Said:)tag:www.fairtaxnation.com,2009-03-02:2636007:Comment:281212009-03-02T02:09:25.279ZMichael Sawukaytishttp://www.fairtaxnation.com/profile/MichaelSawukaytis
Well Said:)
Well Said:)