The truth about Obama's small business tax increase

[DavidS]

Recently, John McCain said that Obama will increase the taxes of small businesses everywhere. That is true. There are many small businesses that make more than $250,000 in net profit.

That means if your small business makes $500 million a year and you can write off $499,754,999 worth of taxes (believe me, it can be done) then you will not see a tax increase. It is important that people see this and see that Obama will only raise taxes for companies that have $250,000 or more in net profit. A simple raise to an employee or yourself can eliminate this tax increase. 90% of small companies will not see a tax increase from Obama.

Obama will also eliminate the capital gains tax for small businesses. This means if someone buys 10,000 shares of my company at $5 a share and then they sell those 10,000 shares when the price hits $20 a share, the investors aren't taxed on the net profit from the investment. That's huge!

Finally, Obama proposes giving small businesses a tax credit of 50% of the amount of money they pay for healthcare for themselves and their employees. Health insurance right now is not tax deductable and I spent about $50,000 last year in healthcare costs for my company. That's a $25,000 tax credit that I'm getting under Obama that I'm not getting under McCain who only provides individuals with a $5,000 tax credit if they get their own healthcare - this is in no way helps small companies grow.

John McCain would help fortune 500 companies who already are making hundreds of million dollars a year in profit by lowering C-Corp (not S-Corp like all small businsses are) taxes. This won't stimulate job creation and won't help the economy recover quicker.

The important thing for everyone to remember is that companies making more than $250,000 in NET PROFIT, not GROSS REVENUE see a tax increase.

 

[bigdaddygtr]

Recently, John McCain said that Obama will increase the taxes of small businesses everywhere. That is true. There are many small businesses that make more than $250,000 in net profit.

That means if your small business makes $500 million a year and you can write off $499,754,999 worth of taxes (believe me, it can be done) then you will not see a tax increase. It is important that people see this and see that Obama will only raise taxes for companies that have $250,000 or more in net profit. A simple raise to an employee or yourself can eliminate this tax increase. 90% of small companies will not see a tax increase from Obama.

Obama will also eliminate the capital gains tax for small businesses. This means if someone buys 10,000 shares of my company at $5 a share and then they sell those 10,000 shares when the price hits $20 a share, the investors aren't taxed on the net profit from the investment. That's huge!

Finally, Obama proposes giving small businesses a tax credit of 50% of the amount of money they pay for healthcare for themselves and their employees. Health insurance right now is not tax deductable and I spent about $50,000 last year in healthcare costs for my company. That's a $25,000 tax credit that I'm getting under Obama that I'm not getting under McCain who only provides individuals with a $5,000 tax credit if they get their own healthcare - this is in no way helps small companies grow.

John McCain would help fortune 500 companies who already are making hundreds of million dollars a year in profit by lowering C-Corp (not S-Corp like all small businsses are) taxes. This won't stimulate job creation and won't help the economy recover quicker.

The important thing for everyone to remember is that companies making more than $250,000 in NET PROFIT, not GROSS REVENUE see a tax increase.

Finally, the truth

 

[Valerie]

Obama will also eliminate the capital gains tax for small businesses. This means if someone buys 10,000 shares of my company at $5 a share and then they sell those 10,000 shares when the price hits $20 a share, the investors aren't taxed on the net profit from the investment. That's huge!

I never understood what he meant by cutting the capital gains tax for small business. Businesses pay tax on their net revenue and it is not treated as a capital gain. In the example you sited, it is the investor who would avoid paying a capital gain tax, not the business owner. I think Obama misspoke, because I remember that he did actually say that.

 

[DavidS]

I never understood what he meant by cutting the capital gains tax for small business. Businesses pay tax on their net revenue and it is not treated as a capital gain. In the example you sited, it is the investor who would avoid paying a capital gain tax, not the business owner. I think Obama misspoke, because I remember that he did actually say that.

If the investor doesn't have to pay tax on their investment, they're more likely to invest more money into the company, which can spur job creation.

 

[Valerie]

If the investor doesn't have to pay tax on their investment, they're more likely to invest more money into the company, which can spur job creation.

Yes, but investors are private citizens holding shares in a public company. The capital gains tax cut in that case is to the individual investor, not the business.

Don't get me wrong, I'm just trying to clarify the meaning of the terms. What you are talking about, and what Obama referred to, is NOT a tax cut for the capital gains on small businesses, it makes no sense.

By the way, an individual investor who has a capital gain as a result of a stock transaction is going to spend the money on a new roof for his house, or a new car, or a vacation, not into the public company whose shares he just sold. The business he sold stock in is not HIS business.

Also, companies that go public and sell shares on the stock market aren't exactly small either. So, I really think Obama misspoke when he said that he would cut the capital gains tax for small businesses, and it seems quite evident that a lot of people don't even understand what that even means.

 

[xsited1]

Yes, but investors are private citizens holding shares in a public company. The capital gains tax cut in that case is to the individual investor, not the business.

Don't get me wrong, I'm just trying to clarify the meaning of the terms. What you are talking about, and what Obama referred to, is NOT a tax cut for the capital gains on small businesses, it makes no sense.

By the way, an individual investor who has a capital gain as a result of a stock transaction is going to spend the money on a new roof for his house, or a new car, or a vacation, not into the public company whose shares he just sold. The business he sold stock in is not HIS business.

Also, companies that go public and sell shares on the stock market aren't exactly small either. So, I really think Obama misspoke when he said that he would cut the capital gains tax for small businesses, and it seems quite evident that a lot of people don't even understand what that even means.

That is correct. Obama either misspoke or did not understand that his plan does not cut the capital gains tax for small businesses.

 

[Skull Pilot]

Recently, John McCain said that Obama will increase the taxes of small businesses everywhere. That is true. There are many small businesses that make more than $250,000 in net profit.

Possibly but most small businesses do not keep large amounts of cash in the corporation. cash either goes to payroll or improvements so really the 250K net is a non issue. It just sounds good to the public.

That means if your small business makes $500 million a year and you can write off $499,754,999 worth of taxes (believe me, it can be done) then you will not see a tax increase. It is important that people see this and see that Obama will only raise taxes for companies that have $250,000 or more in net profit. A simple raise to an employee or yourself can eliminate this tax increase. 90% of small companies will not see a tax increase from Obama.

Chances are some of that money will be used to increase the business owners pay and he'll just get whacked for a higher tax bill so again the tax gets paid here. there really is no break.

Obama will also eliminate the capital gains tax for small businesses. This means if someone buys 10,000 shares of my company at $5 a share and then they sell those 10,000 shares when the price hits $20 a share, the investors aren't taxed on the net profit from the investment. That's huge!

I think you're not reading that right. BHO will not charge you business cap gains so if some property owned by the business appreciates, your business will avoid a long or short term cap gains tax on that. It has absolutely nothing to do with individual investors capital gains taxes due from stock appreciation. In fact BHO wants to RAISE individual cap gains taxes.

Finally, Obama proposes giving small businesses a tax credit of 50% of the amount of money they pay for healthcare for themselves and their employees. Health insurance right now is not tax deductible and I spent about $50,000 last year in healthcare costs for my company. That's a $25,000 tax credit that I'm getting under Obama that I'm not getting under McCain who only provides individuals with a $5,000 tax credit if they get their own healthcare - this is in no way helps small companies grow.

If you pay for your employees insurance or part of it, it is deductible as a business expense.

John McCain would help fortune 500 companies who already are making hundreds of million dollars a year in profit by lowering C-Corp (not S-Corp like all small businesses are) taxes. This won't stimulate job creation and won't help the economy recover quicker.

Most small business start out as S corps but as soon as the business is profitable, an S corp should be converted to a C corp. The reason for the S corp status is so that small business owners can reflect business losses on their individual personal tax returns. If a S corp is profitable, the income passes through to the individual owners and is taxed at the individual's tax rate. the only way to lower taxes on an S corp is to change it to a C corp since all S corp income is taxed at the individual rates of the owners. When you do change status, you lose the ability to claim business losses on your personal income tax but if your business is profitable losing a personal business loss deduction is more than offset by a lower tax rate.

The important thing for everyone to remember is that companies making more than $250,000 in NET PROFIT, not GROSS REVENUE see a tax increase.

If you're doing it right, you should never have a problem showing less than a 250K profit. And isn't net profit a redundant term?

 

[Skull Pilot]

I never understood what he meant by cutting the capital gains tax for small business. Businesses pay tax on their net revenue and it is not treated as a capital gain. In the example you sited, it is the investor who would avoid paying a capital gain tax, not the business owner. I think Obama misspoke, because I remember that he did actually say that.

Capital gains taxes refer to assets that appreciate in value not on income. there are long term and short term capital gains which as the names indicate have to do with how long you hold an asset. Long term cap gains rates are lower.

For example. If you buy stock for one dollar and in 20 years it's worth one million and you sell it. You would be charged a long term capital gains tax on 999,999 as the one dollar purchase price was your basis.

 

[editec]

If you're doing it right, you should never have a problem showing less than a 250K profit. And isn't net profit a redundant term?

No. It is a necessary accounting phrase used to differentiate from it gross profit

NET PROFIT - a company's total expenses from total revenue, thus showing what the company has earned (or lost) in a given period of time (usually one year). also called net income or net earnings.

GROSS PROFIT - Calculated as sales minus all costs directly related to those sales.

This content can be found on the following page:
InvestorWords.com - Investing Glossary

 

[DavidS]

Yes, but investors are private citizens holding shares in a public company. The capital gains tax cut in that case is to the individual investor, not the business.

Don't get me wrong, I'm just trying to clarify the meaning of the terms. What you are talking about, and what Obama referred to, is NOT a tax cut for the capital gains on small businesses, it makes no sense.

By the way, an individual investor who has a capital gain as a result of a stock transaction is going to spend the money on a new roof for his house, or a new car, or a vacation, not into the public company whose shares he just sold. The business he sold stock in is not HIS business.

Also, companies that go public and sell shares on the stock market aren't exactly small either. So, I really think Obama misspoke when he said that he would cut the capital gains tax for small businesses, and it seems quite evident that a lot of people don't even understand what that even means.

I'm not sure what context you're referring to.

 

[DavidS]

Possibly but most small businesses do not keep large amounts of cash in the corporation. cash either goes to payroll or improvements so really the 250K net is a non issue. It just sounds good to the public.

Believe me, at the end of the day, if your bottom line shows $250,000 or greater, there's nothing you can do. You can't do the fake Enron accounting. You can, however; take advantage of all of the wonderful tax breaks that are in place.

Chances are some of that money will be used to increase the business owners pay and he'll just get whacked for a higher tax bill so again the tax gets paid here. there really is no break.

He'll get whacked, but not as hard. Obama's tax increase for the people making over $250,000 a year isn't massive. Your tax increase is only massive if you make over $3 million a year and if taxes are preventing you from creating jobs, then you're doing something wrong.

I think you're not reading that right. BHO will not charge you business cap gains so if some property owned by the business appreciates, your business will avoid a long or short term cap gains tax on that. It has absolutely nothing to do with individual investors capital gains taxes due from stock appreciation. In fact BHO wants to RAISE individual cap gains taxes.

Of $250,000 or more.

If you pay for your employees insurance or part of it, it is deductible as a business expense.

Which is the beauty of his plan.

Most small business start out as S corps but as soon as the business is profitable, an S corp should be converted to a C corp. The reason for the S corp status is so that small business owners can reflect business losses on their individual personal tax returns. If a S corp is profitable, the income passes through to the individual owners and is taxed at the individual's tax rate. the only way to lower taxes on an S corp is to change it to a C corp since all S corp income is taxed at the individual rates of the owners.

Uh, I think you're confused here. S-Corp's profit is taxed. Not income.

When you do change status, you lose the ability to claim business losses on your personal income tax but if your business is profitable losing a personal business loss deduction is more than offset by a lower tax rate. f you're doing it right, you should never have a problem showing less than a 250K profit. And isn't net profit a redundant term?

No. There's gross profit and net profit. Are you a CPA?

 

[Skull Pilot]

Believe me, at the end of the day, if your hich is the beauty of his plan.



Uh, I think you're confused here. S-Corp's profit is taxed. Not income.

The S corps profit IS income of the owners' as far as federal taxes are concerned.

The S corp profit is passed through to the owners, in proportion to their share of ownership, and is then taxed as income to the owners at the owners individual tax rate whether or not they take the money out of the corp. there is not an additional federal corporate tax involved but some states will assess a tax on an S corp.

For example Let's say you have 4 equal share partners in an S corp. Two partners work for the corp. and draw a salary of 100K each. The other two have employment elsewhere and each earn 100K per year.

At the end of the year the company shows a profit of 200K. The the tax returns of each partner will show a 50K profit added to their 100K salaries which will be taxed at each partner's individual tax rate. even if 2 of the partners did not draw a check from the business and left their share in the business coffers, they have to pay the tax on their 50K share of the profit at their individual rate.

If the company showed a 200K loss then each partner would be able to claim a 50K loss off of their personal income.
This is why an S corp is called a pass through entity. It is exempt from federal corporate taxes and all losses and gains are shown on the owners' individual tax returns.

S Corporation Facts

An S corporation is a regular corporation that has elected "S corporation" tax status. Forming an S corporation lets you enjoy the limited liability of a corporate shareholder but pay income taxes as if you were a sole proprietor or a partner.

In a regular corporation (also known as a C corporation), the company itself is taxed on business profits. The owners pay individual income tax only on money they receive from the corporation as salary, bonuses, or dividends.

By contrast, in an S corporation, all business profits "pass through" to the owners, who report them on their personal tax returns (as in sole proprietorships, partnerships, and LLCs). The S corporation itself does not pay any income tax, although an S corporation with more than one owner must file an informational tax return, like a partnership or LLC, to report each shareholder's portion of the corporate income.

Most states follow the federal pattern when taxing S corporations: They don't impose a corporate tax, choosing instead to tax the business's profits on the shareholders' personal tax returns. About half a dozen states, however, tax an S corporation like a regular corporation. The tax division of your state treasury department can tell you how S corporations are taxed in your state.

i was actually talking to my accountant about when to dump my S corp standing just the other day.