Joe, I’m a small businessman and a successful one, although these last four years I haven’t had much growth, but at least I haven’t had a huge downturn. And we are in like businesses, so I know what I speak here.

So man-to-man – let me help you catch up with the math on Obama’s small business plan.

First your taxes will go up if YOU make more than $250K net – after all your expenses. After payroll, inventory, health insurance premiums, workman’s compensation, general liability, office supplies, auto expenses, maintenance, tools and equipment...everything!

So, how much does it take to get to get to 250K net?

Lets assume that you’ll start your new business with you and 3 other plumbers. You bid your first plumbing job, you factor in that your employee’s with taxes and burdens will cost 55% more than their salary.

You pay your brother $35.00 an hour and the other guys $25.00 an hour, that’s $85.00 an hour for all 3 of your guys. With burdens, you’re looking at $131.75 an hour – let’s say the job is a good 40-hour week – labor, without you is $5270.00. Then you’ve got material, travel...etc. Let’s say that it’s $7500.00 for material. You’re at $12770.00 hard costs for the job.

Of course you want to be paid and you need to pay your office overhead so you factor in another 35% then you throw in another 15% for unexpected job related costs. You bid the job at $19155.00 for the job.

Wow – you’ve got a $6385.00 as an estimated gross profit on the job.

Let’s say you’ve got a part-time bookkeeper and receptionist and a small office and shop, couple of trucks, health insurance...etc. So let’s take 40% of that $6385.00 to cover the rest of the costs of doing business.

Net profit $3831.00

So you decide that you’re going to pay yourself, for math purposes $2500.00 of the $3831.00, leaving $1,300 for onsite inventory and supplies. You’re sitting in the 28% tax bracket and then you’ve got your state tax, so let’s say you’re going to pay 32% taxes on your $2500.00 salary. Your net personal income is $1700.00 on that $19155.00, that’s .088% of job.

Joe, so how much business do you have to do to get to $250K in personal net income?

Well, that’s pretty easy. You’d have bill $2,840,000.00 to get to a $250K net income. And Joe, I assure you if you are billing almost 3 million dollars a year you will gladly pay an extra 3 to 5% in income taxes.

Hope this helped you understand the net income versus gross income scenario. You won’t have to worry one bit, until you’re billing exceeds 2.8 million, a problem millions and millions of other small business owners would relish. Oh and one last thing Joe, get a good accountant, you can reduce your tax bill substantially using a sea of tax credits and depreciation schedules.

Originally posted to Arkydem on Thu Oct 16, 2008 at 06:23 AM PDT.

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