Tax season, and frustration. A personal story.

Its that time of year again. And its time to discuss income tax, and the frustrating part for employers. I will open my books up for the sake of discussion to some degree, just to show how challenging our progressive tax code is for small employers.

I simply don't think a lot of people, especially those who advocate for more tax, don't fully understand.

My business has been around for 6 years. I started it from my living room computer desk. I took a massive risk, resigned from my job at a large firm, and started marketing. I took a small salary, somewhere around minimum wage, and reinvested everything back into the company. Marketing, computers, etc. Now in my 6th year, the company has grown, and I want to share a real world look at what taxes look like for a small business owner.

2016 Total Revenue - $395,343.34
2016 Cost of Goods - $615.74
2016 Gross Profit - $394, 727.60

2016 Total Expenses - $240,024.15 (including: 89,313.35 Wages, 8,237.24 employer payroll taxes, employee health insurance $17,946.50, total payroll expenses = $115,515.09)

Other Income - $318.54
Other Expenses - ($-85.00)

Net Income = $155,106.99

But the government sees money I owe (from below) as "Income" even though it was immediately paid to tax. So... we will add the $42,398.00 from below into the "income" total.

So, total "Net Income" = $197,504.99

Now lets break down my tax liabilities in full.

$23,603.00 paid for quarterly tax payments
$8,237.24 paid in employer payroll taxes
$42,398.00 taxes due (Additional tax based on profit and self employment tax SS/Medicare)

Total Taxes Due 2016 = $74,238.24


So, I made $197,504.99 and my total taxes paid was $74,238.24 = 37%

Plus, I reinvested about $50,000 of that taxable income into operating capital for 2017. So its still sitting in the company. We have employees, and even though its my money, I have to make payroll, pay rent, pay insurance, etc. in January, so I can't just pull it all out.

So, my salary last year, after reinvesting capital, after taxes was $73,266.75.

I won't even get into sales tax, property tax, state income tax, and all the other taxes.

I start a company, build it from the ground up, employ people, bust my ass working 60 - 80 hours a week, provide health insurance, benefits, vacation time, etc. and I make $74K off of total income of $197,504.99 paying 37% in taxes. (28% tax bracket, and self employment tax for another 9%).

In what world is that fair? In what world does that tax policy encourage entrepreneurs? How do we encourage people to go out and take risk, be creative, drive the economy, employ people, when we penalize them with such high tax rates?

We aren't talking in platitudes, this is real world, and I think many people who advocate for more taxes simply have no clue the hurdles the government creates with their tax policies for small business. At the end of the day, $74K simply isn't worth it. And for all intents and purposes, my company is huge successful turning nearly 40% profit. Think about the poor guy just barely getting by... taxes would kill him.

I putting it all out there for discussions sake. It is tax season after all, the worst time of the year.

 

You are competition for the people that wrote the tax code. It's really that simple. Those that want higher taxes are the minions of the truly wealthy.

 

All that for $74K per year ... when you could sit on your rear, watch TV, and collect up to $44K in government benefits due to our generous welfare state.

This is exactly what liberalism is all about. No matter how talented we are or how hard we work, we all come out even in the end.

 

I could close my doors right now, liquidate all of my equipment, and work for somebody else and make $125K easy. I am an idiot starting a company under these progressive tax codes.

Serves me no purpose. Every spring, I just want to close the doors. It would be a hell of a lot easier, only work 40 hours a week, and make more money. Let some other employer deal with the BS.

This is why I get so frustrated on this forum when all you hear from people is "they don't pay their fair share!" all while many of these people pay virtually no income tax.

 

How are you going to make $125K easy?

In the real world, the median FAMILY income is about $55,000 per year and your "salary" puts you in a very good position compared to the median, probably in the top 20%.

Now, instead of complaining, you should be happy that you are not in the shoes of your employees, who you probably pay minimum wage.

And, btw, you are not the only one working hard. I have worked 60+ hours per week for many years as a postdoc and before getting tenure, for much less pay than what you make.

P.S.: This doesn't belong in "current events".

 

Now, now. Don't be greedy and expect a financial reward for hard work. This is Amerika.

Hillary Clinton says companies that find it difficult to pay their taxes are just "undercapitalized" because there's nothing wrong with our tax structure (except that it's too low).

 

Depends on what he does, for a living and where he lives. I make more than that now as a single person.

Just do what my boss did (great for him, sucks for us). Sell the company and become a wholly owned subsidiary. You get a big cash payout, still work for the company and someone else manages the headache.

Unfortunately, the "small business" is fast becoming a thing of the past. Nowadays, it seems to be better to start a company, take a golden parachute and sell, then repeat. [sigh]. It's hard to keep track of all the business that were bought by another business without changing the branding. You would be surprised at how many "competitors" are actually subsidiaries of larger companies. Mega corporations, aren't just science fiction anymore....

 

Because people with my degree and level of experience typically earn an income of of $125 in my region.

I see how you are trying to spin this. That's ok.

My employees, at a minimum, somebody with a couple of years of community college, makes $18.50 per hour, plus full benefits, 2 weeks vacation time, a week of personal time, performance bonuses, and a holiday bonus of $1,000.

No, I don't pay my "poor" employees minimum wage.

What does your salary have to do with mine?

Essentially what you are saying here is, "ignore the 37% tax rate, you made $73K, so shut up and be happy."

You think that its ok to take nearly 40% of somebody's money while other people pay substantially less?

 

I don't see any problem with this other than an extra tax for being self-employed. That part is extremely stupid.

 

Apparently, this is to cover my personal social security and medicare costs.

You don't see anything wrong with my company making $200K in profit, and I only get to see $73 of it?

 

Again, other than that extra 9% you had to pay just for being self-employed, no not really. Your business succeeded in no small part because of the stability and infrastructure provided by taxes. You chose to be a responsible employer and pay your employees well in addition to the vacation and benefits you provide. There's a reason that many employers, big and small alike, don't do that and it's name is greed. Like you said, you could make more money getting rid of your business and just working somewhere else, but you didn't, you rose above the "i want it all for myself" greed that permeates American business. You're a part of the solution, not a symptom of the problem. To be quite honest, I respect you for it. If more employers did this, there wouldn't be such a stark income disparity in this country and things would be a lot better.

 

Some of the wealthiest people, like Trump and Buffett, pay a lower tax rate than you show. That indicates that the current tax code favors the wealthy - ya know "trickle down economics". Tax reform has been talked about for "forever". Good luck in seeing any significant changes in the foreseeable future.

Some of the wealthiest people, like Trump and Buffett, pay a lower tax rate than you show. Why? They hire tax attorneys to help them squeeze out every last penny. I didn't see anything in your summary that shows you paid for a tax attorney.

If you have a business and your income derives from a "salary" then you are in serious need of some solid business advice.

One of the biggest problems people with start-ups have is they don't understand tax law. The biggest problem is that they don't know they don't understand tax law. Spend a few bucks, hire some business advice.

Been there - done that.

 

Nice post. You basically said eat crap and keep paying absorbent taxes because you don't have it as bad as someone that doesn't have your credentials or work ethic. Not one mention that paying over 50% in some form of tax is at the very least burdensome. Nope, just an authoritarian guy telling an anti-authoritarian guy to shut up and work for his masters.

 

This is the goal of the entire system, and confused folks run around thinking the government is actually working for them.

 

The thing is, the government CAN work for them if we put people in it that actually have an interest in this country and not just their own bank accounts. Corporations on the other hand are not beholden to anybody but their own shareholders. That's the stark difference. Government is the only way the common man has to exert control over the corporations and other monied interests, but those interests aren't going to sit around and just let it happen. They're going to fight tooth and nail which means those of us who care about this country have to fight harder against them. But people don't pay enough attention to what's happening for a variety of reasons, which is exactly what those monied interests want because it makes it easier for them to exert control. People will get the government they are willing to invest the time and effort into getting, and if they aren't willing to do that, what they'll get is what we have. Which is the same thing we'll have, or worse, if we gut government regulatory powers even more.

The collusion only exists because it's been allowed to exist because of apathy and non-involvement. The government is not a plane on autopilot, it requires constant steering to make sure it's staying on course because those headwind monied interests want nothing more than for that plane to fly around in circles accomplishing nothing while they take more and more.

 

The tax rate for corporations are far too high and are eating away at businesses at a rate they cannot sustain. Instead of rewarding you for good hard work and for employing people, they punish you. Hopefully, in the next few years, this gets turned around and regulations and tax rates are lowered so small businesses like you can flourish.

I get where you are coming from, I really do.

 

ouch, i'm self employed as well and seem to fare much better at least related to effective tax rate, however I have the advantage (?) of not really needing much working capital except for rent and some advertising expenses. Since I really don't need much working capital to begin each year I took the advice of my (new) CPA and now I make a fairly large corporate officer distribution near the end of the year to mostly clean out my office account via those distributions. (no fica/med) Basically I dropped my W2 salary to about half and take the rest as distributions, seemed to help me quite a bit!

so my "business" makes very little money, like 5K annually, I take as much as possible in the form of salary/distributions.

If you haven't looked into corporate distribution options you might want to ask. In the previous years (20+) I took everything as W2 and only found out about my options after having lunch with a buddy in the same biz as me and he explained how he was doing it so I dumped my old cpa and signed up with his guy.

Noted, I asked my old cpa about this and he said "oh ya, you can do that, you just never asked" which really pizzed me off, how the fark was I supposed to know that? I thought that was why I was overpaying him to do my taxes and give advice.

 

Yes, it is okay, because if you want to live in a civilized society there is a price to pay. You should be very happy that there are property rights that are actually enforced and people stronger than you can't just come and take all your hard earned money without repercussions. That's actually how it would be in the 0 tax libertarian dreamland.

And even if you don't pay the 37% taxes to the government, you'd still have to pay for all the services that you otherwise wouldn't have. Or do you think a private company would defend you from ISIS for free? Or build roads for free?

P.S.: Good for you that you for paying your employees more than minimum wage.

P.S.2: I make less than you and have PhD and work 50+ hours a week. You know why? I actually enjoy my work. Money is just a side benefit. So, yes, I am allergic to the complainers who come out of the woodwork every tax season with their "woe is me" attitude.

 

Apparently some people have figured it out.

https://www.bloomberg.com/news/arti...erica-1-700-millionaires-are-minted-every-day

 

This opinion is probably the root cause of the problem. We need to the government to protect from force, fraud or coercion, but that's it. The power of the consumer is much stronger than government. However, the consumers' power has been reduced due to the inability for multiple competitors to survive within the field that government has stacked. Our elected officials can provide little to any change given the current state of the bureaucracy. I have hope, but I don't think there will be any improvement without a dramatic cycle of events.

 

Your response is not surprising given you are compensated from tax dollars. You will defend the status quo to hold onto your crumbs.

 

Obviously. We didn't get to be the richest country in world through socialism. Millionaires stating they got rich through "hard work" is expected. I would say the same thing. In reality, it's better to work smarter, let your money work for you and get lucky here and there. Some get rich through nothing more than being born in the right family.

 

Actually, the University I work at receives only 12% of funding from tax dollars. Next!

 

My, how you complained when funding reductions were proposed in the president's budget. You're a big government guy through and through. You don't realize that you support the top .1%, but you do.

 

Which works out to exactly how much?