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Excuse me if I am being a little naive...but it infuriates me that the Democrats are letting the Tea Partiers get away with calling someone who takes home over $250k a job creator or small business.  COULD SOMEONE PLEASE EXPLAIN IT TO ME? Or explain why the Dems aren't pushing back?  This is how I see it:

How is taxing someone making over $250k a year going to "destroy" small business or a job creator?

Don't we only tax income on small business on their profits AFTER expenses (i.e. net income)? So if someone makes over $250k/year, then it is PURE PROFIT? Republicans say that it will hamper growth to tax anyone making $250k in pure profit, BUT if that small business used that money to grow the business (let's say they put in $50k into opening a new store), then that money is SUBTRACTED from your net profit and therefore they would only be taxed on $200k and therefore be getting a tax cut under Obama's plan?!!?

I just don't get how taxing someone who is making over $250k net profit a few percentage more is going to KILL job creators! THAT IS NET PROFIT PEOPLE! That is a pretty good income and in the very top tier of wage earners.

I can only come to conclusion that Republicans are going to hold middle class tax cuts for the other 99% hostage so their $250k a year NET income friends can keep a few extra thousand bucks.

Please correct me if I am wrong.

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Comment Preferences

  •  By legal standards, a sole proprietorship can be (7+ / 0-)

    called a small business.  Like a hedge fund or a chemical company.

    "Nothing in all the world is more dangerous than sincere ignorance and conscientious stupidity." --M. L. King "You can't fix stupid" --Ron White -6.00, -5.18

    by zenbassoon on Tue Jul 10, 2012 at 11:10:15 AM PDT

  •  correct on the logic (6+ / 0-)

    If you raise taxes on that small business, the owner is more likely to invest in the business instead of taking out the profits.

    On the other point, "small" generally refers to numbers of employees. It's possible to have a very profitable business with only a few employees. That kind of profit is not common (most small business owners don't make anything like that amount), but it's possible.

  •  The most practical definition of small business (11+ / 0-)

    is "eligible for SBA assistance". The Small Business Administration has a page for determining whether your business is small. It depends what kind of business it is, and then how big it is in employees or revenue. So, for example, a full-service restaurant, NAICS 2007 code 722110, is considered a small business with revenue up to $7 million.

    The bottom line, however, is that small businesses are small in relation to big business, that is, to the kind of company that is listed on the NY Stock Exchange or some other (or could be if it went public). A million-dollar business is small in relation to a billion-dollar business. Profit or salary of $250,000 is small in relation to the many millions that big corporate CEOs get.

    You should understand that one of the main reasons to start a business is to make more than the average salaried manager. Independence, being your own boss, is the other most-cited reason.

    Hands off my ObamaCare[TM] http://www.healthcare.gov

    by Mokurai on Tue Jul 10, 2012 at 11:33:02 AM PDT

  •  Someone can correct me if I'm wrong (7+ / 0-)

    but I don't think it works that way.  For the business owners they are talking about, it's not a situation where the business does its own accounting, reports profits to the owner, and the owner then reports those net profits as income -- that's kind of what you envision.

    What they are talking about is people who report all business income on their own individual returns.  The income to the business is as if somebody paid them that amount.  Like if your corner restaurant has $250,000 in Adjusted Gross Income -- not profits, but income -- you are included in those whose taxes would go up.  That is, the business takes in a net $250,000 after allowable deductions.  So you take your (the business') income, subtract allowable deductions, and that's your AGI, and you pay taxes on that.  

    When you get in that income range, the deductions allowed get fewer.  And if you do have too many deductions, the Alternative Minimum Tax kicks in to eliminate those deductions.  

    You might ask why you would report it that way on your own return, and not just have the business do its own reporting, and just give you the net  profits, and you'd just report the net profits on your own tax return.  That's because that $250,000 income then gets taxed twice.  The business would fill out a return, pay taxes on its corporate profits at the corporate tax rates, send the remainder to you, where you pay taxes on it again at an individual tax rate.  

    •  My brother owns a small business, and I'm pretty (1+ / 0-)
      Recommended by:
      rebel ga

      sure that this is how he files.

    •  I would think that most owners of small businesses (2+ / 0-)
      Recommended by:
      Losty, rebel ga

      (most of which are corporations) would pay themselves a salary, and that salary would be taxed at their personal rate, and deducted as an expense of the business, reducing the income of the business by the amount of the salary.  

      I could be wrong, but my perception has been that the $250,000 is net income after all expenses are deducted.

      Because stupid people are so sure they're smart, they often act smart, and sometimes even smart people are too stupid to recognize that the stupid people acting smart really ARE stupid.

      by ZedMont on Tue Jul 10, 2012 at 11:46:43 AM PDT

      [ Parent ]

      •  That assumes the business files separately, (1+ / 0-)
        Recommended by:
        ZedMont

        I think, and pays its own corporate income taxes.  That's more of the second scenario, where business owners complain about double taxation of corporate profits.  

        In that scenario, the business owner gets his salary (for it to be deductible to the business, there are rules about how much that can be) and treats it like salary.  The business pays corporate income tax in its income.  The net profts -- after taxes -- are then reported on the owners income taxes as capital gains income, I think, and taxed again that way -- i.e., the "double taxation" on the same profits, once as income to the business, and once as income to the owner.  

        •  I don't think regular business income can be (0+ / 0-)

          considered capital gains.  

          Because stupid people are so sure they're smart, they often act smart, and sometimes even smart people are too stupid to recognize that the stupid people acting smart really ARE stupid.

          by ZedMont on Tue Jul 10, 2012 at 11:59:18 AM PDT

          [ Parent ]

          •  I think you are correct (0+ / 0-)

            It would be ordinary dividend income taxed at the ordinary income rates.  But not subject to payroll taxes, which is why the IRS has rules about how much a business owner must pay himself in salary if he works in the business.

            •  It's a qualified dividend at long term cap (3+ / 0-)
              Recommended by:
              ferg, greengemini, VClib

              rates, at least for the time being.  But that assumes it's a C-Corp (which pays tax at the corporate level) and that the company has actually dividended the funds back to the owner.  

              W/ an S-corp, the diarist is more or less correct: net profits for the taxable year are reported on the individual owners' tax returns.

              But I don't know how much higher tax rates create incentives for investment, since "investing" means all sorts of things.  Buying a new building, for example, only partially offsets net income (cuz it has to be depreciated over 27.5 years or whatever it is), while salary is 100% deductible, etc.

        •  look into S-corps and LLCs (3+ / 0-)
          Recommended by:
          Losty, greengemini, Catesby

          coffeetalk, you're missing a basic small business tax/organization concept. The "double" tax is about c-corps, which is not a typical small business.

          Business income is normal income, not cap gains. Capital gains is a whole different concept. It only applies on the gain when you sell your business or part of it.

        •  No the business can file separately (0+ / 0-)

          and not pay it's own corporate taxes.

    •  you're wrong (for most cases) (3+ / 0-)

      What he's describing would be the most common case. There's no "double" taxation in an s-corp or llc (the common structures); the profit flows to the owner as income and taxed only for the owner.

      The profit is calculated as a normal business revenue minus expenses. Those business deductions have zero to do with the owner's personal deductions. (So your second and third paragraphs are wrong.)

      After the profit is calculated, it appears on the owner's tax form as something like a schedule K, which is treated as ordinary income for the owner.

      (c-corps are an entirely different beast, but it's harder to call them small businesses.)

    •  You're confusing a few things (3+ / 0-)
      Recommended by:
      ferg, Brooke In Seattle, greengemini

      When Republicans talk about small business, the definition includes all entities where net taxable income flows directly to the owners personal tax returns. This would include sole proprietorships, partnerships of all kinds, limited liability companies, Subchapter S corporations, and possibly some trusts.

      That definition is simply wrong. It would include some giant companies (like Bechtel, as previously mentioned) that are not "small" by any reasonable measurement. And many are investment vehicles that clearly do not fit into logical descriptions of small businesses (like hedge funds). These are not companies that would ever have any adverse affect from small increases in top marginal tax rates. They rarely would make decisions based on individual owner's tax liabilities changing by a few percentage points.

      As a practical matter, that last sentence applies to more traditional small businesses too. I'd welcome any example of a small business that must change it's business strategy based on an incremental increase in top marginal rates for taxable income over $250K applied at the individual owner level. There may be an example out there. Having consulted with small businesses for more than 30 years, no examples come to mind.

      All intelligent references to income in these discussions are net income, not gross income. (Intelligent, in this context, would rule out former Republican Senate candidate Christine O'Donnell, who clearly did not understand the difference between gross income and net income.)

      One more point. For business, the AMT is generally a non-issue. There are only a few common limitations on business deductions related to the AMT, and certainly none that would limit growth through hiring additional employees.

      •  what you said (0+ / 0-)

        The GOS has somehow decided I can't recommend comments in this diary, so I'm having to actually write something. :-)

        I'd welcome any example of a small business that must change its business strategy based on an incremental increase in top marginal rates for taxable income over $250K applied at the individual owner level.
        Any business owner who does so would be, in my not so humble opinion, an idiot.

        There is no snooze button on a cat who wants breakfast.

        by puzzled on Wed Jul 11, 2012 at 02:48:04 PM PDT

        [ Parent ]

    •  C-Corp. vs. S-Corp. I suspect most small (3+ / 0-)
      Recommended by:
      ferg, greengemini, VClib

      businesses are S-Corps because of the tax issue. Our family business changed from a C-Corp to an S-Corp many years ago.  The small business owners I know (all S-Corps) sock their profits back into their businesses to grow the business.  If the business remains profitable, those retained earnings are obviously there to draw on if the owners wish to for personal use.

      C-corps are separate, taxable entities and file a corporate tax return; they pay taxes at the corporate level. This makes for double taxation if corporate income is distributed as a dividend because the corporate level income tax is paid first, and an owner is taxed again as an individual.

      S-corps are basically pass-through entities. Profits or losses are reported on the owners’ tax returns.  Any tax due is paid at the individual level by the owners. No corporate tax rate is paid, but individual income tax is paid on the total of salary and corp. profit along with any salary a spouse might have from a job not related to the small business.

      Robber Baron "ReTHUGisms": John D. Rockefeller -"The way to make money is to buy when blood is running in the streets"; Jay Gould -"I can hire one half of the working class to kill the other half."

      by ranton on Tue Jul 10, 2012 at 01:24:41 PM PDT

      [ Parent ]

      •  I remember Olbermann doing a piece on S-Corps (0+ / 0-)

        ...which is how the Koch brothers file (Olbermann files this way).  I'll have to see if I can dig up a date...

        "Kenyan-Muslim-Communistic-Expialidocious!"

        by chmood on Tue Jul 10, 2012 at 04:57:37 PM PDT

        [ Parent ]

        •  That is interesting...privately held company so I (0+ / 0-)

          guess that would make sense...no one to pay dividends to except themselves.

          Robber Baron "ReTHUGisms": John D. Rockefeller -"The way to make money is to buy when blood is running in the streets"; Jay Gould -"I can hire one half of the working class to kill the other half."

          by ranton on Tue Jul 10, 2012 at 09:48:36 PM PDT

          [ Parent ]

    •  I've owned small businesses and that's not how it (0+ / 0-)

      works.

      Business deductions are always deductible.  Most individuals who take business income as a 1099 straight to their personal income just want to avoid paperwork - but it's not very smart.  For several reasons.

      The most common forms of small businesses are the LLC and the Sub-Chapter S.  In the Sub-Chapter S, the business fills out a tax return, listing all the income and expenses.  But it doesn't pay taxes on that money.

      The amount of profit is reported to each partner and the IRS, and only the profit goes on the personal tax return.

      I think it works similarly for LLCs.

      It's only where you get into the area of C-Corps where there is double taxation.  And you're only required to be a C-Corp if you have over a certain number of investors.

  •  How about, the Repukes are full of sh*t!! (2+ / 0-)
    Recommended by:
    Brooke In Seattle, ranton

    And a lot of their constituents are ignorant. That someone can look you straight in the eye and insist that lower taxes creates more revenue proves my point. But if you keep hearing the same stupid over and over and over, you might start believing it.

    Your left is my right---Mort Sahl

    by HappyinNM on Tue Jul 10, 2012 at 11:45:48 AM PDT

    •  The most infamous propagandists that the world has (2+ / 0-)
      Recommended by:
      a2nite, HappyinNM

      ever seen certainly understood how effective that is.

      Robber Baron "ReTHUGisms": John D. Rockefeller -"The way to make money is to buy when blood is running in the streets"; Jay Gould -"I can hire one half of the working class to kill the other half."

      by ranton on Tue Jul 10, 2012 at 01:28:39 PM PDT

      [ Parent ]

  •  Yes, you're wrong (1+ / 0-)
    Recommended by:
    greengemini

    Keep in mind the different definitions of "income" between businesses and individuals.  Business income is profit.

    For a small business that puts their profit on the owner's personal tax return (Subchapter S corp. for example), the business' receipts are netted against the expenses and then the net profit or loss is shown on a form K-1.  The K-1 total is shown on the owner's 1040 individual tax return.  This is greatly oversimplified, but this is the idea.  I wish the term "income" was never used for a business...call it profit, which it is.

    •  Just to be clear (0+ / 0-)

      Someone who is taxed at the high marginal rate is still walking away with $250k to live on for the year? Right?

      I realize that money goes to living expenses, but they are still collecting income from the business of $250k

      •  No, not necessarily. (1+ / 0-)
        Recommended by:
        VClib

        Taxable income is a different thing than cash flow.  If you've used the profits to purchase investment property that depreciates, then you could have large profits and negative cash flow.

        •  But (0+ / 0-)

          Isn't that an investment you choose to make personally? If I take all of my income from one year and invest in a property, that's a personal investment.  I still made $250k that I could personally invest.

          However, if I took that money and bought a new property for a new location for my store, I could write that off. Correct?

  •  How it works (4+ / 0-)
    Recommended by:
    xopher, Losty, wblynch, greengemini

    The $250k tax point works this way.  Everyone, regardless of their total taxable income, pays the same rates up to $250k.  Even if good ol' Mitt earns $5mil, he pays the same tax on his first $250k as someone who's total taxable income was $250k.  Mitt's income on his next $4-3/4 mil will be at the new higher rate.  And, all of us making less than $250k will pay whatever the tax tables say for the level we make.

    A small business owner who has a personal taxable income of $250k (lucky owner, indeed) will get the breaks in the present law.  The owner who has the taxable income of, say, $260k, will pay the new higher rate on the $10k over 250.  Few owners of what I'd call a small business make $250k in TWO years, or maybe in three or four.

  •  Things like retirement and health insurance (1+ / 0-)
    Recommended by:
    greengemini

    Small business owners must pay for health insurance and retirement packages from their own income. So a small business owners income may be 40%more than it would be if they received the same income, insurance and retirement from a company.

    Also, if they're doing business in a city with a high cost of living, the money won't go as far.

  •  things like retirement and health insurance (0+ / 0-)

    Small business owners must pay for health insurance and retirement packages from their own income. So a small business owners income may be 40%more than it would be if they received the same income, insurance and retirement from a company.

    Also, if they're doing business in a city with a high cost of living, the money won't go as far.

  •  The SBA (Small Business Administration) (5+ / 0-)

    has this chart of what constitutes a 'small business'.

           Manufacturing: Maximum number of employees may range from 500 to 1500, depending on the type of product manufactured;
           Wholesaling: Maximum number of employees may range from 100 to 500 depending on the particular product being provided;
            Services: Annual receipts may not exceed $2.5 to $21.5 million, depending on the particular service being provided;
            Retailing: Annual receipts may not exceed $5.0 to $21.0 million, depending on the particular product being provided;
            General and Heavy Construction: General construction annual receipts may not exceed $13.5 to $17 million, depending on the type of construction;
            Special Trade Construction: Annual receipts may not exceed $7 million; and
            Agriculture: Annual receipts may not exceed $0.5 to $9.0 million, depending on the agricultural product.

    Democrats - We represent America!

    by phonegery on Tue Jul 10, 2012 at 12:08:40 PM PDT

  •  Heard Michele Bachmann tell an interviewer (6+ / 0-)

    That taxing anyone making over $250k would hurt small business' like the local plumber who billed about $1,000 a day to make that much per year.

    If the plumber had to pay higher taxes he wouldn't be able to purchase equipment or pay an employee she said.

    Of course the interviewer never told her that employee payrolls and supplies in her illustration would be deducted from the total receipts putting the tax burden below the $250k threshold.

    I wondered if she was just stupid or purposefully misleading.

    Mojo?!?! What mojo?

    by xopher on Tue Jul 10, 2012 at 12:16:16 PM PDT

  •  I can say it again (2+ / 0-)
    Recommended by:
    ferg, greengemini

    You can pick any tax rate you want if you create enough jobs.

    Tax rates apply to the money you hang onto, not the money you use to create jobs.

    Create enough jobs and you can get your tax rate down almost as low as Mitt's..

  •  as usual, it's complicated (1+ / 0-)
    Recommended by:
    VClib

    I own a small business, so I've had time to think about this sort of stuff. It's true enough that $250,000/year is a great income . If I make that much this year, I'll certainly be thrilled, and expect to pay some taxes. But owning a profitable business isn't the same as getting paid a salary.
    Scenario: You own a popular downtown restaurant. There are lines to get in, you're making money. This year you make $250,000. Yay.
    Last year, however, in spite of working 60+ hours a week, you made zero. You broke even. While that's better than losing money, and you didn't have to pay much in taxes, you still had no money to pay yourself.
    Better yet, the year before that was your start-up year. You invested tons of money in renovating your space, taking out full page ads in the local paper, whatever. You lost $250,000.
    Obviously, taxes are only one of your problems here. You need to keep the employees happy, attract customers, buy food, satisfy the health inspector, etc. But watching your cash is an important part of what you need to do, and higher taxes make the game more difficult.
    If you have debts (and most businesses do) you have to pay them from after-tax income. (The interest, of course, is a tax deductible expense, but not the principal.)
    Expanding your business, and hiring more employees is also done with after-tax income.
    That doesn't necessarily mean that slightly higher taxes will stop your restaurant from expanding or hiring. It's just one more thing that slows you down.

    •  business expenses are pre-tax (0+ / 0-)

      It's been that way for my consulting business for 30 years and my brother's health club for 30 years as well.

      Employee expenses, equipment, advertising, rent & utilities are all pre-profit, therefore pre-tax.

      Your losses can be amortized over years until they are used up.

      The principal on those debts was non-taxable income at the time you received it., It makes sense it would be non-deductible at payback.

      You need a new accountant.

  •  Better yet, hire someone (0+ / 0-)

    If you have 250,000 in net profits from a business, that can very easily be reduced by actually hiring someone.

    At 250,000 personal income, your federal tax rate would be 25% ( overall).    

    http://www.calcxml.com/...                                                

    If you do hire someone, it will lower your taxes.  The taxman will pick up 25% of the cost of your new employee!

    Thats the story democrats need to tell.

    Religion gives men the strength to do what should not be done.

    by bobtmn on Tue Jul 10, 2012 at 02:56:35 PM PDT

  •  Corporate Tax rates are lower (0+ / 0-)

    The business owners I know form a corporation and pay themselves a meager salary.  The salary is well below the $250,000 threshold (typically about $45,000)

    The rest is corporate income and taxed at a much lower rate.

    Plus their cars, home remodels and travel (vacation) expenses are all paid by the "corporation".  

    Their retirement plans get fully funded by the corporation at 100% tax-free rates.

    They buy their wife's diamonds through the corporation and several of these people I know live in a corporation owned house (for 'free').

    Oh, and their kids work for the corporation, but not really, they get paychecks though.

    So a whole heck of a lot of income is manipulated out of tax's harm.

    And THEN... all on top of that... they will only pay the increased personal tax rates on the income OVER $250,000.

  •  where are the jobs from these fucking tax cuts (0+ / 0-)

    The radical Republican party is the party of oppression, fear, loathing and above all more money and power for the people who robbed us.

    by a2nite on Tue Jul 10, 2012 at 04:56:27 PM PDT

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