This is one of the biggest myths that the right-wing is putting out there. The Reagan tax cuts for the rich were strictly for
personal, take-home life-style dollars. Had nothing to do with taxes on their business. Ask any small businessman what his strategy should be for Higher personal income taxes in an environment of tough business competition. He will tell you that his best strategy is to take home fewer life-style dollars and put more into his business.

Do you really think that a smart small business is going to price hs business out af a tough market, just so that he can take home more lifestyle dollars? Prices have exclusively to do supply and demand.

So in your scenario the "rich" will take home less lifestyle dollars that can be taxed? Isn't that a wash then? They are bringing home less money to be taxed.

Um, have you ever filed taxes for a small business owner???

There "life-style tax" as you call it is their business income.

The business income is considered their personal income. They don't file separate tax returns for the business. There are exceptions, and all business owners I know try to avoid having the business as their personal income, but it is very hard to do that when you are the owner of it.

Feel free to provide a link or something. I am sure the FBI would love to know what you do and they do not.

It's been all over the news for years. You must live in a cave if you haven't heard a speech from Bin Laden claiming responsibility. The group's name is Al Queda. Do you need a website to know who it's leader was?

I own a consulting business (which is no different from any other small business). There is no difference between company income and personal income. I don't know where you came up with this stuff (I guess you just made it up) but it is factually wrong. If fact, it shows that you know nothing of the topic at all.

A specious smoke-screen. The two types of income are treated completely differently. The Life-style part is taxed as personal income. The business part is deducted from taxable income.

The fact that the IRS lumps them in together is an irrelevant red-herring. It is no different that ane revenues of a large corporation. the part that gets taken home for life-style spending (dividends, stock options, etc) are treated differently than revenues that are re-invested in the business. Works exactly the same for small business owners.

The only relevant fact is that money that gets taken home for life-style spending gets taxed as personal income. Money that is re-invested in the business does not get taxed at all. Simple fact.

You are truly amazing! You write "Ask any small business owner .." and when multiple small business owner point out you are wrong, you just post more of the same wrong bs.

For most small businesses there is no difference between business or personal income.

See my post above, and tell us all how that is wrong. We all want to know.

I file a schedule C. My small business is me. I have not incorporated the business separate from me. This is called a soul proprietorship. In this situation there is no difference between business or personal income.

Legal incorporation is what separates the personal from the business income.

In my case, money that I reinvest in my business activity is a deduction, business expense etc. Business equipment gets a depreciation break every year. New equipment is totally deducted as expense.

If I incorporate, I have to keep separate books, pay myself a wage, and pay taxes on those wages. If the company pays wages (to me) it can deduct those wages as an expense. If the company makes a profit, it will pay taxes on that profit.

I am the single "corporation," and I am my business. The name of my business is my real name in all capitols. I and my business qualifies as a single entity.

A separate corporation is considered a separate entity. If I incorporated legally and separately, there would be two entities and two sets of books and two tax returns to do.

In order to protect your personal income from lawsuits that are filed against your business you must legally incorporate and separate from that business. Otherwise a lawsuit against your company can attach your personal property and income because they are legally the same thing.

Yes, but even doing so doesn't guarantee they can't come after you personally.

I worked for a CPA. While she was working as an Auditor, a company asked her to sign a disclosure form. The form indicated that she may be an officer of the company. The company didn't pay their payroll taxes and the owners split. The IRS could not locate them, but could locate my boss. 10 years after this happened she was still getting calls from the IRS saying she owed these taxes despite the fact that the business was its own legal entity.

What he is really saying is it isn't fair that you are only taxed on your net profits. He is at least implying that you should pay taxes on your revenue. How much would your prices need to increase to cover that if that were the case??? I am guessing double or triple at least.

For Art:

I worked for a small business.

Net Revenue was $1,500,000.

Net profit was about $30,000. (they hoped to hit 5% margin but usually were around 2 or 3%)

What I think you are saying is that they should be taxed on the $1,500,000 not the $30,000.

The owner paid himself about $65,000 and his wife (CPA) who worked as his CFO he paid about the same.

If they should pay tax on the revenue, the owner would have to pay $525,000 tax with a net take home pay of $160,000 between his salary, her salary and the profits in the company. But, I think you would say he should also pay tax on the salaries he paid to himself and his wife, correct???

The owner said two things on a regular basis.

He saw his business as "supporting the families of my employees."

And, "the only reason I am in business is because I signed this lease." (his stores were all on leased property)

This is gobbledegook. I am not sure where you think I said that the company should be taxed on its net revenues.

You said the owner paid himself $65,000. This comes under wages and salaries. . That is a business expense. The business is not taxed on it at all. The $30,000 is subject to taxationby the business. as ordinary personal income if it gets taken home to spend on personal lifestyle. If it gets reinvested in the business, it draws no taxes.

The principal is simple. If it gets spent on lifestyle, it gets taxed. If it stays invested in the business, it stays tax-free

You are almost right.

What you said earlier I understood to mean all revenue should be taxed. Sorry I misunderstood. But that was why I asked the question...

In every case where I filed taxes on behalf of a business owner, their net profit ($30,000 in my example) is taxed as personal income. The $65,000 is also personal income. So in my example, when they file taxes, the business is reported on their Personal return on schedule C. That roles the net profit up as personal income. So, for their household, the gross receipts they have for the year between the 3 entities is $160,000 reported on their personal tax return. (Note: the $30,000 is taxed as income regardless of their intent to use it in the business next year) (Also note: if the business was not allowed to deduct their salary as an expense then they would pay tax on the $65,000 they receive in the W2 and pay tax on the additional $65,000 net profit as it was not allowed to be deducted from revenue. Taxed twice on the same money...)

The only way the $30,000 is not taxed is if they invested in expenditures to reduce the net profit of the company to zero. That would be like $30,000 worth of office supplies and janitorial supplies. They would have to buy a whole ton of disposable needs of the company that support its main business purpose. Buying inventory would not remove the $30,000 either.

Investing in capital equipment would not remove the $30,000 from taxable income. That is deducted in future years through depreciation. All capital equipment will fail and need to be replaced no matter how solid it appears. That is why depreciation is allowed as a normal business expense. But also why you cannot deduct the purchase of a new building as an expense that year. Because its usable life is a lot longer obviously. That is also why you cannot deduct the land owned as depreciation. Because the land will never go bad. You won't ever have to replace the lot on which you operate your business.

I just reread your statement. You are right - WHEN the business is considered a separate legal entity according to the IRS.

Most people that own their own business do set up a separate legal entity to keep those transactions out of their personal life. However, the IRS looks at who runs the business. It doesn't matter if you have it set up as a corporation a lot of the time, the IRS still says it must be reported on the schedule C on personal taxes.

Partnerships are a bit different in that the partnership files taxes to report the amount of earnings of each partner. The Partnership doesn't actually pay taxes itself. The partners pay the tax through their own personal tax return. All profits associated with that partner are taxed as normal income.

But you are correct when the business is a separate legal entity that files and pays its own taxes. Then the only time it is personal income is when it is taken by the owners (think dividend). And actually, that is not money taken out of the profits of the company, that is taken out of the equity, so just a reduction of book value of the company.

Please ask if you don't understand something...

Just thought of something...

You often hear of rich men owning a corporation as a "tax write off"

What that is, is they own a corporation that is loosing money every year. The business losses offset other business profits. That is the write off.

However, the corporation IS loosing money, so the owner must give it money every year to keep it running.

I would say this is more of a philanthropy thing than a tax write off.

I don't see how the tax savings would be greater than the amount paid into the corporation every year.

It is different for
Corporation,
Partnership,
S-Corporation,
Trust, and
Non-profit organization

And most (rich)businesses are not sole proprietor businesses, that is false.

so that is what he is talking about,

The starting point that I made on this topic was:

The taxes on the "rich" hit the small businessman the most. The ones that already are doing very well have all kinds of means at their disposal to avoid or reduce taxes. It is the guy starting up his own business that is just getting it going and growing that can't avoid paying the higher tax rates. That hurts his business because. He can't expand as fast which means fewer employees will be hired. Or he may possibly stagnate at that level.

I could see an argument that the higher taxes on the rich are actually designed to prevent new businesses from growing and competing with BIG business. So, the high taxes on the rich actually work in BIG business favor...

The IRS is nothing but a collection agency. They will come after anyone they think they can scare into paying. She was not libel for that just because they were trying to intimidate her.