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It's not the income taxes, it's the self-employment taxes he's referring to that will be that high. They are painful.
Self Employment tax is the equivalent of social security and medicare. If I am employed 7.65% is withheld from my check for ss and medicare, aka fica. My employer pays the other 7.65%. If I am self employed I record that 15.30% on the second page of the return. But, I get a credit of 7.2% on the front of the return. So as a sole prop I still only pay 7.2%. This is the same as if I work for someone else. The big difference is that if I am an s corp I pay myself a salary and the scorp pays 7.2% and 7.2% is withheld from my salary. The 7.2% that the corp pays is an expense and lowers my tax liablity. He has to be talking about net income from the schedule C that a sole prop uses. That shows up on the front of the 1040 return. The income from a s corp or llc also show up on the front of the return. But I am repeating my self. It is in the sole props best interest to form an s corp or llc now and it will continue to be so.
I'm seeing all kinds of silly emails and psychic predictions regarding future tax rates for small business if Obama is elected. TALK TO A CPA. The rumors regarding employee layoffs don't make sense.
Wages are an expense to a company thus they reduce tax liability because net income is reduced. If I have two employees I pay fewer taxes then if I have one employee. If I pay two employees 15000 each my payroll expense is 30000. My net (sales less expenses) income is reduced by 30000. If I lay off one employee my net income is only reduced by 15000. Thus my tax liability will be more because my net income will be higher without that expense. All other things being equal, say I have net income of 250000 with two employees and 265000 with one employee. Suppose my tax rate is 10%. 250000.00 x 10% = 25000. 265000 x 10% = 26500. My tax liability will be 1500 higher with only one employee. I will have fewer expenses with only one employee. wage 15000 - tax liab 1500 = 13500. So I have 13500 fewer expenses, perhaps I need to lay off that employee because I don't need him, or because the cost to ship is high because of high fuel costs, but taxes would not be a consideration. If my tax rate goes up the same rule applies because my tax liability is based on net income. Two employees increase my expenses and reduce my income.
I'm not an accountant, but I did take accounting 101 at my local community college a few years ago, so I'll try to keep up.
I have a problem with your example because the presence of an extra employee seems to have no effect on the operation of the business. Why is this person employed in the first place? Is the business owner lonely?
"If I lay off one employee my net income is only reduced by 15000. Thus my tax liability will be more because my net income will be higher without that expense."
Let me get this strait, you don't want an extra $15,000 because your taxes will increase $1,500?
"perhaps I need to lay off that employee because I don't need him, or because the cost to ship is high because of high fuel costs, but taxes would not be a consideration."
Correct, you don't need him. I agree.
Here's the part you left out. Costs, whatever their origin, have the same effect on the bottom line, so your assertion that taxes don't matter because they are somehow different from a rising fuel cost is ridiculous.
IF MY BUSINESS IS OPERATION IN THE RED, SOMEBODY HAS GOT TO GO!
Well I can understand their position as they have benefited most from Reagan/Bush philosophy. I get it. I really do.
You're responding as if they exist in a vacuum. They don't. Corporations and small business are the economic lifeblood of our country. If they get hurt by ill-advised economic and tax policies, such as those Obama espouses, we all get hurt and people lose their jobs.
People need to stop making this a personal vendetta against 'the rich' and start thinking more about the big picture. If we penalize corporations and businesses for being successful, we jeopardize millions of people's 401k/pension plans and jobs. Or, IOW, we cut off our nose to spite our face.
We'll have fewer corporations/people making less money, and therefor paying less in taxes - while the Government's entitlement and assistance obligations increase. IOW - Obama's policies would hasten the building pressure of an inverted pyramid, with the entitlement and assistance receivers forming a grotesquely bloated base, that will crush the few supporting our economy.
I'm not an accountant, but I did take accounting 101 at my local community college a few years ago, so I'll try to keep up.
I have a problem with your example because the presence of an extra employee seems to have no effect on the operation of the business. Why is this person employed in the first place? Is the business owner lonely?
"If I lay off one employee my net income is only reduced by 15000. Thus my tax liability will be more because my net income will be higher without that expense."
Let me get this strait, you don't want an extra $15,000 because your taxes will increase $1,500?
"perhaps I need to lay off that employee because I don't need him, or because the cost to ship is high because of high fuel costs, but taxes would not be a consideration."
Correct, you don't need him. I agree.
Here's the part you left out. Costs, whatever their origin, have the same effect on the bottom line, so your assertion that taxes don't matter because they are somehow different from a rising fuel cost is ridiculous.
IF MY BUSINESS IS OPERATION IN THE RED, SOMEBODY HAS GOT TO GO!
No I am responding to the ones who are saying that they will lay off an employee because of taxes. The point was that employees are laid off for other reasons and that taxes would most likely be only a very small part of that decision. I used higher fuel, but I agree the real reason would be lack of work. Besides I don't know a single person who has decided not to go into business because they might have to pay taxes. One accountant I know tells his clients that they are lucky because if they have to pay taxes then they are making money. You all are going to get after me for that one. He has a very large practice and his clients don't leave when he says it.
Obama plans to eliminate capital gains tax for this group of people. He also is not raising the tax rate for this group of people.
No obama is is NOT eliminating the capital gains tax he is lowering it for BUSINESSES not individuals. People like me who do not own a business but own stock WILL get slammed with capital gains taxes.
I just read his plan on his website and I see nothing about capital gains for individuals. For businesses yes, individuals no. If you read his plan he to is giving the majority of the tax cuts to businesses so why is his plan any better then McCains. Obama's plan for "middle class" people not businesses is as follows.
1. $500 for single and $1000 check (first round but it does not say when or how much any other rounds will be)
2. He will extend current tax credits for seniors making less then $50,000 per year.
3. Extending unemployment benefits and temporarily remove paying tax on the unemployment benefits. (All this must be approved by Congress)
4. Removing the penalty for early withdrawal for a 401K or IRA for hardship cases.
5. Allow seniors to delay the mandatory withdrawal for there 401K plans.
6. Instruct HUD to restructure current mortgages.
Then there is some stuff about changing bankruptcy law.
So this is the core of his ideas for the middle class PEOPLE not business but PEOPLE.
As I see this plan ordinary people are not really getting very much. You will get the $500 or $1000 check but no word on when or if another will come. People who have 401Ks benefit some but 90% of his "helping" is for businesses. So how it is that Obama is for the "people" but McCain is not. Reading Obama's plan for the "people" really sucks for me. Oh and the capital gains tax is for businesses only, individuals will again be slammed with higher taxes in this area.
Informedconsent,
I don't agree but that's ok. You are right the corps don't exist in a vacuum. It is a two way street. When Henry Ford decided his employees could be his best customers he was reviled and laughed at. Look what happened. He was enormously successful. If we as a nation continue this myopic obsession with taxes we are lost. Jobs lost to overseas countries benefit the corp, in the short term, but jobs in america are lost. Other jobs are created but they don't pay the same wage. Thus people don't have the same purchasing power they used to have. They took awhile to figure it out hence the huge credit card debt. Now we are seeing a contraction in the economy. If people can't afford to buy the products corps are selling then the corps don't have to worry about taxes. They are out of business.
This whole conversation is moot anyway. We have a trillion dollar debt in this country. And an economy in the toilet. Lets try to get past the every man for himself mind set and find a solution that benefits all of us. There are solutions we can agree on and there are comprimises we will both have to make. But, we have to suck it up and do it without the name calling and the rigid I am right at all cost crap. WE need to insist on this regardless of who is elected.
TeamFoster - jobs lost to oversees countries don't just benefit the company, they benefit every stakeholder of that company. That includes you! The US standard of living has increased dramatically in many respects because of outsourcing. Products that were one relegated to the rich are now available to almost every American. Cell phones, DVD players, audio equipment, better health care, lower food prices, etc. The middle class today lives like the wealthy of the past. Do some research on the "great middle" class of the 50's and 60's. Homes were smaller, had fewer amenities, and cost about the same as they did in 2000 adjusted for inflation. Many families had one car, one TV, did not eat out, had three TV channels, and one Hi-Fi in the family room. The annual road-trip vacation was a big highlight.
Today's middle class includes iPods, iPhones, two nice cars, vacations, cable TV with 300 channels, big screen TV's, a stereo in every bedroom, eats out 3 times a week, a big house, etc. etc. This increase came at the "expense" of lower-cost labor in other countries.
Despite the millions of jobs outsourced in the last 10 years, the unemployment rate is the same. As we export mfg. sector jobs, they are replaced by service sector jobs. As the rest of the world expands (China, India, etc) they represent a whole new pool of customers for US-based service companies. Henry Ford was right then, and he is right today.
The economy is global - we have to get past the America-only mindset. What would you rather do - manage a factory or work in it?
Lets try to get past the every man for himself mind set and find a solution that benefits all of us.
Obama's campaign IS based EXACTLY on getting people to think only of themselves and what kind of benefit they will get from an Obama Presidency. Obama is depending on voters' inability to understand that if you penalize successful individuals and businesses, you disincentivize success and legitimate (not bubble) economic growth.
For the most part, Obama is correct in assuming that most people will not be able to understand how his proposals, if enacted, will damage the economy.
Imagine that... depending on Americans' ignorance to win the election. Sadly, we have no shortage of people who make foolish financial decisions in this country.
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