$249,999.00 Is the Goal

[Care4all]

the tax deduction of the employee's pay...that is given to the employer../the reason to claim every dime you are paying out in payroll...to get the deduction....

a flat tax, there are no deductions for businesses payroll.....

I can't see business owners supporting a flat tax with no deductions

If you take in 1,000,000 in one year but after paying payroll, cost of goods, etc. you are left with $100,000 profit for your own income....you'd pay (at a 30% flat tax rate) tax on the 1,000,000...which would be $300,000. Instead of the current 28% on $100,000, which is $28,000.

A flat tax with no deductions would not apply to business owner's gross income (profit) and gross sales. The Flat tax scenario applies to individual income taxes thus not to business "expenses" which go to Schedule C 1040 and are subtracted from gross sales or gross income which becomes adjusted gross income which finally goes to form 1040 for individual application of the income tax. But this misconception will be attempted to be applied by those who see profit as an evil, and is telling of the perception of fairness which is not and can not be a part of the formula of taxation applied to individuals vis-à-vis business. They are like apples versus oranges for comparison.

makes sense...if businesses would still get deductions

 

[Ravi]

the tax deduction of the employee's pay...that is given to the employer../the reason to claim every dime you are paying out in payroll...to get the deduction....

a flat tax, there are no deductions for businesses payroll.....

I can't see business owners supporting a flat tax with no deductions

If you take in 1,000,000 in one year but after paying payroll, cost of goods, etc. you are left with $100,000 profit for your own income....you'd pay (at a 30% flat tax rate) tax on the 1,000,000...which would be $300,000. Instead of the current 28% on $100,000, which is $28,000.

A flat tax with no deductions would not apply to business owner's gross income (profit) and gross sales. The Flat tax scenario applies to individual income taxes thus not to business "expenses" which go to Schedule C 1040 and are subtracted from gross sales or gross income which becomes adjusted gross income which finally goes to form 1040 for individual application of the income tax. But this misconception will be attempted to be applied by those who see profit as an evil, and is telling of the perception of fairness which is not and can not be a part of the formula of taxation applied to individuals vis-à-vis business. They are like apples versus oranges for comparison.

Are you saying you see personal income tax as fair and all other taxes as evil?

If you are advocating that nothing but salary income is taxed I don't think you'll get very far with it. I've never seen a coherent flat tax plan that doesn't heavily favor everyone except those that actually receive a salary.

I've never even seen a real flat tax plan, most seem to be a progressive tax with one allowable standard deduction.

 

[Immanuel]

what keeps them honest NOW?

the tax deduction of the employee's pay...that is given to the employer../the reason to claim every dime you are paying out in payroll...to get the deduction....

a flat tax, there are no deductions for businesses payroll.....

in a flat tax situation, there wouldnt be corp taxes
so that eliminates that

What makes you think that they are not going to require corporations to pay the flat tax as well? That is a new one on me.

Immie

 

[American Horse]

I can't see business owners supporting a flat tax with no deductions

If you take in 1,000,000 in one year but after paying payroll, cost of goods, etc. you are left with $100,000 profit for your own income....you'd pay (at a 30% flat tax rate) tax on the 1,000,000...which would be $300,000. Instead of the current 28% on $100,000, which is $28,000.

A flat tax with no deductions would not apply to business owner's gross income (profit) and gross sales. The Flat tax scenario applies to individual income taxes thus not to business "expenses" which go to Schedule C 1040 and are subtracted from gross sales or gross income which becomes adjusted gross income which finally goes to form 1040 for individual application of the income tax. But this misconception will be attempted to be applied by those who see profit as an evil, and is telling of the perception of fairness which is not and can not be a part of the formula of taxation applied to individuals vis-à-vis business. They are like apples versus oranges for comparison.

Are you saying you see personal income tax as fair and all other taxes as evil?

Not at all, I am suggesting that some people believe any and all profits are seen as being evil though. Please read again the words bolded above.

If you are advocating that nothing but salary income is taxed I don't think you'll get very far with it. I've never seen a coherent flat tax plan that doesn't heavily favor everyone except those that actually receive a salary.

Let me try to put this in perspective without getting into a lot of definitions about wages, salaries, profits, income, etc. There are costs of doing business that are not income so have to be subtracted from the gross to arrive at the income or profit. Those costs (and some standard items like IRAs and Keogh plans) have to be subtracted from the gross "income" to arrive at the Adjusted Gross Income which is equivalent to all those bolded above.

As an easy to understand example take the construction of a house: The costs of land, building materials, subcontracted labor (along with equipment provided), in house labor, professional services, permits, fees, etc are hard costs and expenses and are not "deductions" as are finally applied to peronal/individual income taxes. The builder is left with about 7 to 10 percent which is profit; let's say 8.5%. If the builder was not able to deduct all those costs he or she would pay taxes on the gross sales. Lets compare:

As it stands now a $200,000. home will yield perhaps $17,000 in net profit or Adjusted Gross Income (AGI is arrived at after IRAs and some pension plans are subtracted from net profit) That is what our builder pays individual income taxes on, and that is what the flat tax is intended to apply to. Lets say as it now stands, Fica (15%) and Income tax (28%), now total about 43% so he sends to the IRS about $7,300; that is the actual case now. Of course the builder builds several homes per year, but at some point he becomes less personally involved in each unit and loses some control thus his percentage of profit suffers, along whith the quality of his work, and his reputation.

Say there was a flat tax of 15%, and still a FICA TAX of 15% and then that was paid against the gross sale; then the tax would be $30,000. But competition and moderated demand for the product still forces a profit of about 7-10% for the builder. As you can see, in that case the taxes would exceed the income by a factor of four.

I've never even seen a real flat tax plan, most seem to be a progressive tax with one allowable standard deduction.

Here's a problem that so many of us have. If we all had to immerse ourselves in the tax system we would begin to see it more clearly. Most people don't have a clue as to how the whole system works. For most that will only happen when they are in a position in which understanding it becomes vital for their financial survival, and that is definitely the case with the small business person.

...

 

[American Horse]

the tax deduction of the employee's pay...that is given to the employer../the reason to claim every dime you are paying out in payroll...to get the deduction....

a flat tax, there are no deductions for businesses payroll.....

in a flat tax situation, there wouldnt be corp taxes
so that eliminates that

What makes you think that they are not going to require corporations to pay the flat tax as well? That is a new one on me.

Immie

They won't. The income that is distributed down to the employees, be they salaried or hourly wages would pay the flat tax. Corporations distribute their earnings to those employees (and others with a financial interest), and all the rest goes to the operating expenses of the corporation or new plant and equipment (capital expenses).

...

 

[Immanuel]

They won't. The income that is distributed down to the employees, be they salaried or hourly wages would pay the flat tax. Corporations distribute their earnings to those employees (and others with a financial interest), and all the rest goes to the operating expenses of the corporation or new plant and equipment (capital expenses).

...

So, you are saying a corporations "Net Income" will not be taxed?

Exxon Mobil can make billions of dollars in one quarter alone and go untaxed?

Horse shit!!

Immie

 

[Ravi]

Not at all, I am suggesting that some people believe any and all profits are seen as being evil though. Please read again the words bolded above.

Okay, I guess, but I don't know who these some people are unless you are speaking of communists...a group that is very much in the minority.

]Let me try to put this in perspective without getting into a lot of definitions about wages, salaries, profits, income, etc. There are costs of doing business that are not income so have to be subtracted from the gross to arrive at the income or profit. Those costs (and some standard items like IRAs and Keogh plans) have to be subtracted from the gross "income" to arrive at the Adjusted Gross Income which is equivalent to all those bolded above.

As an easy to understand example take the construction of a house: The costs of land, building materials, subcontracted labor (along with equipment provided), in house labor, professional services, permits, fees, etc are hard costs and expenses and are not "deductions" as are finally applied to peronal/individual income taxes. The builder is left with about 7 to 10 percent which is profit; let's say 8.5%. If the builder was not able to deduct all those costs he or she would pay taxes on the gross sales. Lets compare:

As it stands now a $200,000. home will yield perhaps $17,000 in net profit or Adjusted Gross Income (AGI is arrived at after IRAs and some pension plans are subtracted from net profit) That is what our builder pays individual income taxes on, and that is what the flat tax is intended to apply to. Lets say as it now stands, Fica (15%) and Income tax (28%), now total about 43% so he sends to the IRS about $7,300; that is the actual case now. Of course the builder builds several homes per year, but at some point he becomes less personally involved in each unit and loses some control thus his percentage of profit suffers, along whith the quality of his work, and his reputation.

Say there was a flat tax of 15%, and still a FICA TAX of 15% and then that was paid against the gross sale; then the tax would be $30,000. But competition and moderated demand for the product still forces a profit of about 7-10% for the builder. As you can see, in that case the taxes would exceed the income by a factor of four.

I think the definition of income IS very important when it comes to deciding what is taxed. If the builder in your example can pay his profit to himself as a dividend then it isn't income and therefore not taxed. Therefore, this plan needs to be spelled out in great detail and clearly defined.

Here's a problem that so many of us have. If we all had to immerse ourselves in the tax system we would begin to see it more clearly. Most people don't have a clue as to how the whole system works. For most that will only happen when they are in a position in which understanding it becomes vital for their financial survival, and that is definitely the case with the small business person.

...

Not sure of your point here...if a flat tax system is workable it's very simplicity should be easy to explain and the average person would really have no reason to be clued into in great depth about how the current system works.

 

[Valerie]

If the builder in your example can pay his profit to himself as a dividend then it isn't income and therefore not taxed.

Dividend income is taxed too, as you pointed out earlier in the thread.

 

[Ravi]

If the builder in your example can pay his profit to himself as a dividend then it isn't income and therefore not taxed.

Dividend income is taxed too, as you pointed out earlier in the thread.

Now it is, but it seems in AH's flat tax scenario it wouldn't be.

 

[American Horse]

If the builder in your example can pay his profit to himself as a dividend then it isn't income and therefore not taxed.

Dividend income is taxed too, as you pointed out earlier in the thread.

Dividend income goes to schedule B and goes to form 1040 as unearned income, meaning FICA does not apply to it, but the standard divident rate like the capital gain rate does apply.

But existing IRS codes do not(and never have) permit sole proprietors to distribute income as dividends. You really do need to talk with a CPA about these issues. They do seem complicated, but anyone immersed in the system soon becomes knowlegable. They are very restrictive. Everything is designed to be sure the IRS gets its share.

Some people form Scorps to distribute income in exotic ways, but as it stands now the only advantage I can think of would be to avoid paying FICA because it would've become undearned income. But a Builder will be excluded above $100k any way so that issue becomes moot. If he makes under $100k (as it becomes individual income) he is scrambling to get his hands on money to stay afloat. If he makes over 100k I fail to see any advantage, except that it becomes a capital gain.

Don't fail to take into account the costs of a CPA. I opened a cabinet and appliance store in 1983 as an SCorp. Next to the cost of advertising and space my costs for accounting services were my second largest expense. My corporate partner and I each lost about 120k over a three year period, and we closed. There are lots of additional costs for accounting for SCorps versus SP status. Remember that these corporations are government recognized/sanctioned entities. Their books have to be audited, and if the company's book-keeper is not precise the CPA will spend a lot of high dollar professional hours on it. There are requirements for meetings to be held by corporate officers with minutes kept. If that is not meticulously done, the IRS can and will challenge the corporate status of the business. If there is a minor lawsuit like a small claim made against the company, the officers can't go in and represent themselves, but must be represented by an attorney. If the do business across state borders think of the expense of hiring an attorney in a remote location.

As for liability, consider that an employer is protected by the Worker Compensation Law and he protects himself with a W.C. insurance policy against lawsuits by employees in caser of injury. No protection is offered against some types of grievances though. Other liability is protected against with an ordinary Liability policy. Even now as a semi-retired individual SP I protect myself with a 3-million liability policy, and get certificates from everyone who does work for me to assure that they are doing the same. I am audited annually on this to make sure I'm doing this.

 

[American Horse]

They won't. The income that is distributed down to the employees, be they salaried or hourly wages would pay the flat tax. Corporations distribute their earnings to those employees (and others with a financial interest), and all the rest goes to the operating expenses of the corporation or new plant and equipment (capital expenses).

...

So, you are saying a corporations "Net Income" will not be taxed?

Exxon Mobil can make billions of dollars in one quarter alone and go untaxed?

Horse shit!!

Immie

Never fear, every dollar of their net income will be taxed, but not likely at the flat tax rate; instead at the corporate tax rate. And that would be on any dollars they don't distribute as wages to employees or spend on their business, unless they can show it was spent on capital assets like plant and equipment which is not allowed to be capitalized (expensed) immediately in the first year but over the imputed life of the asset. Corporations like GM GE Ford have whole floors of their headquarters dedicated to IRS people who constantely review their records to ensure compliance.

...

 

[Immanuel]

Immie

Never fear, every dollar of their net income will be taxed, but not likely at the flat tax rate; instead at the corporate tax rate. And that would be on any dollars they don't distribute as wages to employees or spend on their business, unless they can show it was spent on capital assets like plant and equipment which is not allowed to be capitalized (expensed) immediately in the first year but over the imputed life of the asset. Corporations like GM GE Ford have whole floors of their headquarters dedicated to IRS people who constantely review their records to ensure compliance.

...[/QUOTE]

Okay, I still prefer the Fair Tax by far.

Immie

 

[DiveCon]

Okay, I still prefer the Fair Tax by far.

Immie

the "fair tax" is a sales tax thing

 

[editec]

you confuse me with someone that supports those taxes in the first place

but, the reason for those increases in taxes are a direct result of smoking in the sense that its supposed to pay for the healthcare those smokers will need
however, i dont support doing those things
i dont support government price subsidies on tobacco either

no, i disagree with any sin taxes...gvt trying to control people's own freedom and none of the smokers get any kind of healthcare paid with their taxes for themselves, nothing....alcoholics don't get any of the extra taxes they collect off them either....

placing ridicuously high taxes on what is deemed ''sins'' is just wrong, and seems uncontitutional....if these things are sooooo wromg that gvt can punish you for it thru high taxes then why don't they just ban it....if it is not bad enough to ban, why should those doing it have to pay more taxes for doing such?

it's principle

do you also reject the things those taxes are supposed to pay for?
if not, who do you suppose should pay for those things?
surely you would not ask non-smnokers to pay for smokers healthcare

But that is EXCTLY what is happening.

FACT: Smokers do NOT cost as much as NON SMOKERS in health care costs.

They die, and do NOT continue demanding those hip replacements and other things that a GERIATRIC populion demands.

If you doubt me, divide the avage MEDICARE cost of nonsmokers to the average MEDICARE dollaars spend on NON SMOKERS.

The high cost of smokers to the tax payer is one of those MYTHS which nobody ever questions.

the numbers are there for you all to see.

Smokers have been and will continue to be driving DOWN the cost of HC tfor the nonsmokers due to our higher mortality rates.

Dead people do NOT cost a whole helluva lot in HC costs.

DYING by inches OLDER people (those would be the non-smokers statistically speaking) definitely do.

 

[Ravi]

So THAT IS why hospitals enforce no smoking on their property. I thought it was stupid because it would drive down their future business...but I see just the opposite is true.

 

[DiveCon]

no, i disagree with any sin taxes...gvt trying to control people's own freedom and none of the smokers get any kind of healthcare paid with their taxes for themselves, nothing....alcoholics don't get any of the extra taxes they collect off them either....

placing ridicuously high taxes on what is deemed ''sins'' is just wrong, and seems uncontitutional....if these things are sooooo wromg that gvt can punish you for it thru high taxes then why don't they just ban it....if it is not bad enough to ban, why should those doing it have to pay more taxes for doing such?

it's principle

do you also reject the things those taxes are supposed to pay for?
if not, who do you suppose should pay for those things?
surely you would not ask non-smnokers to pay for smokers healthcare

But that is EXCTLY what is happening.

FACT: Smokers do NOT cost as much as NON SMOKERS in health care costs.

They die, and do NOT continue demanding those hip replacements and other things that a GERIATRIC populion demands.

If you doubt me, divide the avage MEDICARE cost of nonsmokers to the average MEDICARE dollaars spend on NON SMOKERS.

The high cost of smokers to the tax payer is one of those MYTHS which nobody ever questions.

the numbers are there for you all to see.

Smokers have been and will continue to be driving DOWN the cost of HC tfor the nonsmokers due to our higher mortality rates.

Dead people do NOT cost a whole helluva lot in HC costs.

DYING by inches OLDER people (those would be the non-smokers statistically speaking) definitely do.

ROFLMAO
yeah, cause they dont cause any expense in the process of dying


you are smarter than this

 

[Jon]

Something I don't think has been mentioned in this thread yet: the new tax rates aren't the only tax increase upper income earners are getting. Obama has also proposed exemption phase outs, something that was a complete disaster previously. So basically, he's going to give people exemptions (which are hard enough to find) and then take them away gradually depending on your income level. This is the exact opposite of making the tax code easier, and it's just another way to raise taxes on the rich.

 

[oreo]

Beautifully said, Care.

It may be beautifully said, but it may not be fair nor accurate to say. This may or may not be the case with Manu (and maybe he will answer for himself here), but I know it's not the case with people who operate as Sole Proprietors.

Many Sole Proprietors, out of a sense of frugality and uncertainty take small advance draws against their work or contract. They 'casually' call that a "salary" simply regarding it as such, fearful that it will have disappeared when the project or contract is completed. They hedge against that possibility by drawing as little as possible as the project progresses.

They are not entitled to unemployment benefits, and they DO pay FICA on their whole "profit" up to the required limit as it is reported on Schedules C and SE.

I know that was how I worked, drawing as little as possible just in case the "profits" didn't pan out as I'd hoped when I originally bid the work. Profits are all about risk and are never a certainty, and that is too often the case when the project is completed and costs and income have to be reconciled. Sometimes the so called salary that has been drawn is zero'd out because the profit is nil. Profits are almost never a certainty.

For Sole Proprietors the IRS regards all in excess of costs and expenses to be reported as a "profit" on Sched C and no wages paid to him/herself by the proprietor are tax deductible nor are they recognized as salary.

When You all in New York State and California get fed up with your total tax burden, come to Indiana where you can relax and enjoy life.

...

well mustang,
4 scorp business owners in a row came on this thread or the other one about the same thing, that they DO NOT PAY SS/Fica taxes on their profit of the business in which they take as income, on their tax returns?

So what is it? Do they or do they not have to payy SS taxes on the money they take as profit and report as such on their income tax returns?

I am an s-corporation & have been one for over 30+ years--I am an electrical contractor.

Owners of S-corporations do pay FICA taxes on the "income" or "salary" that they take during the year just like their employees do. At year end--profit or loss is determined. Profit is considered K-1 investment income or dividend income & is not FICA taxed--just like anyone who owns stock in a company that pays dividends.

This is the difference between "earned income & investment income."

Owners of S corporations are asked on the S-corporation year end return (how much did owners/officers pay themselves during the year in salary--or FICA taxable income). I believe that's line 3 of the return. So if they are distributing income back to themselves a little too heavily in dividend income they will be audited & will be requried to pay FICA taxes, penalites & interest on the amount that the IRS feels belonged in the salary column.

The sole proprietor pays FICA taxes on all income & profit. There are two benefits of being an S-corporation. 1. Is the protection of a corporation. 2. Profit of the company is not FICA taxed--only income or salaries to the owners are.

 

[oreo]

Something I don't think has been mentioned in this thread yet: the new tax rates aren't the only tax increase upper income earners are getting. Obama has also proposed exemption phase outs, something that was a complete disaster previously. So basically, he's going to give people exemptions (which are hard enough to find) and then take them away gradually depending on your income level. This is the exact opposite of making the tax code easier, and it's just another way to raise taxes on the rich.

This democrat congress & President is not only going to raise their taxes to 40%--they are going to jerk the personal deduction rug out from under their legs.

They are going to cap their mortgage interest rate deduction at 28%. A real blow to the housing industry as wealthy people build homes. A real blow to the entire economy as they invest in commercial properties, invest in businesse's & put their money into the economy stimulating the private sector in all.

Why the hate in this country against successful-hardworking people?

Don't Americans realise: There has never been a poor person that has hired another poor person.

 

[Ravi]

Something I don't think has been mentioned in this thread yet: the new tax rates aren't the only tax increase upper income earners are getting. Obama has also proposed exemption phase outs, something that was a complete disaster previously. So basically, he's going to give people exemptions (which are hard enough to find) and then take them away gradually depending on your income level. This is the exact opposite of making the tax code easier, and it's just another way to raise taxes on the rich.

This democrat congress & President is not only going to raise their taxes to 40%--they are going to jerk the personal deduction rug out from under their legs.

They are going to cap their mortgage interest rate deduction at 28%. A real blow to the housing industry as wealthy people build homes. A real blow to the entire economy as they invest in commercial properties, invest in businesse's & put their money into the economy stimulating the private sector in all.

Why the hate in this country against successful-hardworking people?

Don't Americans realise: There has never been a poor person that has hired another poor person.

It'd be nice if you'd quit lying, Oreo...but I guess it's pathological with you.