Just heard something on the news, verify?
 

A reporter assert that:

1. Most new jobs are started by small businesses
2. Most small business owners are in the $250K range

Are these 2 asserts accurate? Link?

B

Depends how you define "small business owner".

I rather doubt most small business owners are clearing $250k profit a year income. If they are, then their doing quite well.

Question is, how much are these new jobs paying in wages and benefits? If it's minimum wage without any medical benefits, then the new jobs are next to worthless for the people filling them. But that appears to be what our economy has trended towards.

IIRC he didn't say, "Profit." I believe he said said income.

If so, then after paying overhead, supplies, inventory, insurance, and employees, wouldn't be much profit before or after after taxes.

Poverty level job creation isn't worth squat to anyone trying to earn a living. Sounds alot like our current economy, no wonder so many people are on food stamps and such.

On a small business, profit is usually taken as income.

Basically same thing, different words.

Even if you incorporate, you cannot just let it lie in the corporation's accounts past Dec 31. If you do, it becomes subject to the same corporate income taxes charged to large businesses, meaning you will pay double taxation on it, once as corporate income, next as personal income. Small businesses are pretty much forced to remove all profit as it occurs, or immediately spend it on capital or expense items.

IMO, most small businesses are probably generating about $200k per partner per year. The vast majority of them are professional practices of some sort.

Figures I & J. Report pgs 19 & 20

http://www.irs.gov/pub/irs-soi/05petska.pdf


edit: http://www.bls.gov/news.release/pdf/cewbd.pdf

Any help?

Small businesses on or about the $250k mark actually have a great deal of leverage to avoid the tax, they simply shift more of their own expenses onto the corporation. It is as a floor value that will include all of the very wealthy that really concerns The Party of The Very Wealthy.

"Small Business" covers a rather wide range. The SBA definition: "A business that is independently owned and operated that is not dominant in its field of operation, provided it has annual receipts not in excess of $500,000 and has fewer than 500 employees."

500 employees is a good size company compared to us at 26. We did our little part by hiring 3 new salespeople this year.

If you're a restaurant, you are "small" if you do up to maybe $600k, maybe $800k a year. If you're a farmer you're still small if you do $5 million. OTOH if you're a personal chef, you're big if you manage to bill $80k.

In my experience, item 1 is accurate. Over 90% of all business in the USA are considered small business. It follows that that class is going to do the most hiring. I'm looking at adding 2 employees myself.

As to income, the amount reported is at least on par with several of those I work for..

That’s why I previously suggested you look into investing in one.....

Man, that is some data-rich food for thought right there. It looks like the data supports the notion that businesses with a few dozen employees are about the only businesses left (as of the second doc) that are still at break-even to slightly ahead hiring vs laying-off.

What happens if you raise the taxes on the S corp owners who are currently being squeezed by recession?

I knew where you were going with this right from the beginning. As to your question, that's a good one. Who knows? On the flip side, what happens when you give them a tax cut? Will they automatically hire more people even if they don't need them? I don't think so. On the other hand, will they automatically lay off valuable people because now they have to pay slightly more tax? I don't think so either. More likely they'll just get rid off some dead weight. It's also worth considering that any tax increase on individuals making over $250K will likely be accompanied by tax breaks for small businesses, including credit for hiring additional workers, so for a small business owner the whole thing may well be tax-neutral.

If the small business definition in use is that promoted by the U.S. Small Business Administration, the definition encompasses far more businesses than you may realize: http://www.sba.gov/contractingopportunities/officials/size/SUMM_SIZE_STANDARDS_INDUSTRY.html

Joe the plumber wants his question back. :rolleyes:

For people who have jobs &/or employ others or who may look for a job or may wish to start their own business, ... taxes at a time like this are an important consideration.

Short answer? They pay more tax, other things being equal.
But being squeezed would mean less income and less taxes, no? But yeah, it's a given isn't it, that when business falls off, employees are shown the door, or hours cut, or something is done to cut costs?

I just put down the pencil on a return of mine whose H/W owner's S corp provided them 300,000 in compensation and another 400,000 in pass thru income. They left for the greener (union free) pastures of the Southland about 10 years ago and have been very successful down there. Their combined fed & state income tax rates are 42% and toss in another, oh, 3 or 4 % for FICA effect, and you're talkin' taxes mate. Total bite for them last year..about 280. ( I don't want to make that call tomorrow :o)
Their payroll varies with the contracts. Last year, non owner wages were about 800,000 and I suppose that was 25-35 workers, depending...

I remember telling him about 20 years ago not to complain about paying at 28%. He'd never see the top rate that low again during his lifetime. I was right. ;)

One thing S Corp. owned by professionals (docs, lawyers, accountants, etc) may see in the not too distant future is self employment tax on all pass thru income. This has been kicked around for a while, is chronically abused, and may have champions on the hill now. We shall see.:rolleyes:

In the meantime, may I interest you in some bedtime reading from a member of the Council of Economic Advisors on the subject of the effect of taxes on small business investment and hiring decisions? (pp8-9)
http://www.treas.gov/offices/economic-policy/round_table_documents/2004/rosen.pdf
Also:
http://www.sba.gov/advo/tax_conf.pdf

Last time I checked profit is income, my most memorable moment with a CPA was after my first year in business I had a hefty income tax bill, his response was that it was a good problem to have...I agree. I got slapped that year because although he is a great accountant he didn't think my tax liability was going to be that significant that year, obviously he didn't know much about Ferrari's.

Chapter 2:

Profit taking

Those figures sound about right. Taxes are usualy your second biggest expenese, after employee's.

Every cost increase affects you, be in fuel, materials, taxes, or a minium wage increase.

They are they biggest single expenses aside from material, its all the little 1%'s that you forget about which eat you alive.

Tell me about it! I'm going to get a better quickbooks program than my uncle uses and watch every cent!

I got a surprise with my first project which was just a little fix up...I wanted to spend $10k, and those little 1%'s pushed it to almost $12k! NFW can that happen with a real project.

If you watch the pennies the dollars will take care of themselves.

and the 1%'s only accounting for $2000 of your equation is optimistic.

Yeah that makes sense, pennies add up to dollars!

We ran into some unexpected things like we had to put in a radon system, so I don't think I did to bad. The radon system cost us like $500 alone.

One thing that I am very good at is estimating, I can get an estimate down to cleaning the last mouse turd in the duct work but the best lesson I've learned is its best to be pessimistic rather than optimistic. In other words guess how much it will cost.......then beat your own guess down start with the lowest corner of the job and work your self up to the chimney cap.



Then add 20%

Thats about right.

I figured about $2k for a new furnace.

The furnace cost a tick over $1,500, plus $700 for labor and about that in parts. So it was a $3k job.:D

Golly, you mean being self-employed takes WORK!? Why would anybody want to take that risk, given that the government wants to tax the shyte out of small businesses?

Ferrari's don't grow on tree's.:D

Taxes have been going down since the 60's.
Calling the BHO increase from 35-40% "taxing the crap
out of small businesses" seems a bit over dramatic if you
consider that the rates were 80%-90% 1944-1963

Fox News?


http://www.truthandpolitics.org/top-rates.php
Tax year Top marginal
tax rate (%) Top marginal
tax rate (%) on
earned income,
if different<1> Taxable
income over--
1913 7 500,000
1914 7 500,000
1915 7 500,000
1916 15 2,000,000
1917 67 2,000,000
1918 77 1,000,000
1919 73 1,000,000
1920 73 1,000,000
1921 73 1,000,000
1922 58 200,000
1923 43.5 200,000
1924 46 500,000
1925 25 100,000
1926 25 100,000
1927 25 100,000
1928 25 100,000
1929 24 100,000
1930 25 100,000
1931 25 100,000
1932 63 1,000,000
1933 63 1,000,000
1934 63 1,000,000
1935 63 1,000,000
1936 79 5,000,000
1937 79 5,000,000
1938 79 5,000,000
1939 79 5,000,000
1940 81.1 5,000,000
1941 81 5,000,000
1942 88 200,000
1943 88 200,000
1944 94 <2> 200,000
1945 94 <2> 200,000
1946 86.45 <3> 200,000
1947 86.45 <3> 200,000
1948 82.13 <4> 400,000
1949 82.13 <4> 400,000
1950 84.36 400,000
1951 91 <5> 400,000
1952 92 <6> 400,000
1953 92 <6> 400,000
1954 91 <7> 400,000
1955 91 <7> 400,000
1956 91 <7> 400,000
1957 91 <7> 400,000
1958 91 <7> 400,000
1959 91 <7> 400,000
1960 91 <7> 400,000
1961 91 <7> 400,000
1962 91 <7> 400,000
1963 91 <7> 400,000
1964 77 400,000
1965 70 200,000
1966 70 200,000
1967 70 200,000
1968 75.25 200,000
1969 77 200,000
1970 71.75 200,000
1971 70 60 200,000
1972 70 50 200,000
1973 70 50 200,000
1974 70 50 200,000
1975 70 50 200,000
1976 70 50 200,000
1977 70 50 203,200
1978 70 50 203,200
1979 70 50 215,400
1980 70 50 215,400
1981 69.125 50 215,400
1982 50 85,600
1983 50 109,400
1984 50 162,400
1985 50 169,020
1986 50 175,250
1987 38.5 90,000
1988 28 <8> 29,750 <8>
1989 28 <8> 30,950 <8>
1990 28 <8> 32,450 <8>
1991 31 82,150
1992 31 86,500
1993 39.6 89,150
1994 39.6 250,000
1995 39.6 256,500
1996 39.6 263,750
1997 39.6 271,050
1998 39.6 278,450
1999 39.6 283,150
2000 39.6 288,350
2001 39.1 297,350
2002 38.6 307,050
2003 35 311,950

Does anyone here know the current number one reason people leave small business or will/can't start a small business?

Hint:

Not capital

Not taxes

Taxes are a detail in the pursuit of success. Only idiots would use the fear of taxes as a lame-brained excuse not to try to succeed. Moreover many people don’t shy away from work and the opportunities it brings. Many actually embrace work.

Those who have spent their life working for the government, or do nothing but warm a chair all day every day have a demonstrated lack of comprehension for the benefits that work can bring.

Personality conflict?

Right now that reason would be lack of capital.

Nope.

The number one reason according to Forbes is health insurance, the cost is so high that many people are taking the flight to safety with jobs that provide health insurance.

That reminds me of a sign I haven't seen in a long time: "Help Wanted".
You first got to define "job", then tak e look at the definition of "employment". A job usually does not guarantee employment.

A business generating $250K per anno does not allow a budget for a full time regular employee with standard benefits.
It may allow for an occasional part time job, when needed, today but maybe not tomorrow.

One sign I have recently encountered instead of the "Help Wanted" sign:

Not Hiring! No Travajo! Spray painted on a sheet of plywood placed at the entrance to a construction site. I'd say we'll see more of those in the upcoming future, even though Bernanke states the recession might be over by the end of the year ....

Tijuana

... just below San Diego ... land of broken dreams

... they say "Hey Gringo, take us 'cross the border, we'll work for just a quarter ... on the other side ..." - JJ Cale

The answer to that is universal health care like I've said numerous times.

Or how about a dollar for dollar tax credit to pay for private insurance?

Health insurance provided outside of the realm of the business gets the cost off the business's books. One of the reasons we are failing when competing with socialist economies is that they do not have to carry any health care costs at all on their books. Sometimes socialistic methods are the most effective capitalistic profit generators, ask anyone from Germany or China, or from the increasingly successful Scandanavian countries. We are so wrapped up in our own myth of American infallibilty, we find it impossible to see where other systems have actually led to more, not less, commercial success, by spreading certain costs over the entire populace instead of burdening business with them. If health care costs were removed from GM, for example, the price of an American car would drop $5,000 or more immediately.

I'm not disagreeing, personally I think socialized medicine will spur small business growth...

Here here.

And yet as we speak, China and Vietnam are adopting more and more capitalistic ways. China has Billionaires and 350000 millionaires.

How do you figure that when they calculated that GM cars cost $2000 more to build than a Jap car? Same pool of labor. Only difference is they negotiated badly when they were doing well.

It's better than nothing, but it has a few problems. It doesn't cover the entire cost of health insurance for many if not most people and it does nothing to address administrative and middle-man/insurance costs. Every other country that has adopted universal health care has also taken effective steps to reduce administrative costs by doing things like computerizing records. I'd go even further and completely bypass the private health insurance industry which is the middle man and expand Medicare for everyone.

China and Vietnam are still a lot more socialist. They were coming from an extreme so naturally they adopted more capitalistic ways.

Union vs. non-union labor + retirement benefits. Yes they negotiated badly.

And they are adopting more and more capitalistic ways as time goes by and their socialist ways are dropping more and more. Give them time and we will end up as socialists and they will be the capitalist.

For that, they deserve to fail. If I negotiate a contract badly and pay more for a product than I should, I deserve to fail.