need an accountant's perspective

[Steve]

up front I must say that I am not trying to further any political agenda; I
am only trying to understand...

Some politicians say that raising taxes on the wealthy is a bad idea, as
they are the "job creators" and need the money to build their businesses.
As a self-employed person, I know that the fastest way to pay less taxes is
to invest in my business, and in the process lowering my gross profit, upon
which I am taxed. Buy stuff, hire people. I work on a very small scale; is
there something different about the way larger companies, even larger small
businesses, are taxed, that makes the "don't tax the job creators" argument
more credible?

Thank you very much,
Steve the freelance A/V guy

[paulthomascpa]

"Steve" <steves.fo...@gmail.com> wrote

The biggest difference is the number of commas in their bottom line. That
and politicians point to their book accounting (GAAP) which show profits
from world wide operations and talk about how little US taxes they pay.
Well duh. The facts are that their US business isn't as profitable as their
foreign operations. And we have had a long standing policy of not taxing
foreign earned (and supposedly foreign taxed) profits, and/or allowing for
tax credits that off-set any supposed double taxation, and/or an outright
exemption on foreign earned income (for an individual it's $80,000).

The next biggest difference is that in a small closely held company, you are
the shareholder, employee, and bottle washer. And sometimes you're the
creditor too. Large companies have tens of thousands of investors
(shareholders) as well as lenders and creditors (think suppliers). Those
other people have competing interests with lowering corporate profits.
Shareholders want higher profits so they can get dividends. Lenders and
creditors might even have loan covenants for certain profit percentages.
For tax purposes they probably already are maxing out depreciation writeoffs
(Section 179) while for GAAP they are capitalizing and depreciating tape
dispensers and trash cans (I actually know a company that does this).

And finally (but never the last word) you have the flexibility to change
your bottom line in any manner you wish, be it bonusing out to yourself,
hiring your kids (they're "people" too), buying some new equipment "for the
business". You can do so very quickly, at will, and I've even heard of
people backdating checks to get the expense in the prior year. Big public
companies have auditors that get bitchy when you do things like that.

Politicians play off the stupidity of the public, and the press plays along.
No one bothers to seek out the facts, or test the assertions against known
facts, or test them against real life scenarios. "Because so-and-so said
it, it must be true". We all do that to some degree, mostly from a total
lack of time to back check what they are saying. Maybe because we want it
to be true (if it sounds too good....).




--
Paul Thomas, CPA
www.paulthomascpa.com

[Steve]

"paulthomascpa" <paultho...@bellsouth.net> wrote in message
news:Z4SdnZdxSsuGmXvT...@giganews.com...

Thank you for your thoughts.

"Politicians play off the stupidity of the public". This is what concerns
me. The "tax-which-must-never-be-raised", of course, is the personal income
tax. The group pointed to as being victimized are small business owners.
But the ones who worry about them (or who are told to worry about them) are
the vast number of voters who are NOT business owners - who are unaware of
the points you make above.

Oddly, I would imagine that the higher the top tax rate. the bigger
incentive to invest more money in one's business! Use it or lose it.

[Shawn Hirn]

In article <4ee2523e$0$28386$607e...@cv.net>,

The other day, I heard a report on NPR where they called various
congress critters who defend the Bush tax cuts. The reporter asked if
the congress critters could provide one single example of a constituent
who has hired more workers as a result of the Bush tax cuts on the
wealthy. Not one congress critter was able to provide any proof. They
reporter also called a local Chamber of Commerce, and asked the same
question. Nada there too.

[paulthomascpa]

"Steve" <steves.fo...@gmail.com> wrote

> "Politicians play off the stupidity of the public". This is what
> concerns me. The "tax-which-must-never-be-raised",
> of course, is the personal income tax.

Taxes may indeed have to be raised. The thing to think about is what types
of taxes and on whom they should apply. We shouldn't be going about that
business through partisan politics, with raw emotion, and playing the envy
game. We do just that, but we shouldn't.

And I think it's backwards to a degree. The spending function is what
drives the need to tax and amount of tax to be collected. My office condo
association just passed their 2012 budget for spending, which total
determines the amount of dues that needs to be collected. Of course, we
collect based on the unit owners percentage of space, not how much they
make, or their view of the highway or parking lot, or whether their unit is
occupied or not. There could be an argument that: "You live here, you have
to contribute to the costs of upkeep". Some minimum "head tax" if you will.
Whether or not something like that will fly is beyond my payscale.

> The group pointed to as being victimized are small business owners. But
> the ones who worry about them (or who are told to worry about
> them) are the vast number of voters who are NOT business owners
> - who are unaware of the points you make above.

Businesses and a host of "professionals" (and I'll use that term here very
loosely) see more in taxes and fees than the ordinary joe employee. In most
all states licensed professionals, the ones that are commonly thought of are
doctors, lawyers, accountants, nurses, etc, as well as trades like
contractors are licensed (taxed) by their state. Not as well known are the
various states and municipalities that license (tax) the person who cuts
your hair, security guards and librarians (someone needs to be licensed to
go "Shhhhhhhhh!!!).

I have two professional licenses, one for me personally and one for my
business, a county business licenses, I pay property taxes on my office
unit, and another tax on my business equipment, and there is taxes on my
employees (payroll, unemployment, etc). Some are small, just $60 a year
for the county business license, some are hundreds if not thousands a year
based on where you live or work. And if I worked in various states I'd have
to get licensed in each state. So my contractor client that works in
various states gets licenses in each state, and county and city that
requires it. I'm not complaining, just pointing out that there are many
more taxes and fees on a business and it's owner than people realize.

> Oddly, I would imagine that the higher the top tax rate. the bigger
> incentive to invest more money in one's business! Use it or lose it.

I haven't researched it, but someone had mentioned that in the years where
there were higher tax rates, the country didn't see any statistically
meaningful change in tax collections. Tax collections go up and down for a
variety of reasons based on the type of tax and how it's measured. And some
tax types are impacted by other taxes. Sales taxes are closely tied to
disposable income (which is after Social Security, Medicare, Federal, state
and local taxes are taken out). Increase those taxes and you have less to
spend that might be subject to the sales tax. Heck, increases in a sales
tax increases the total cost to the consumer, and increases in the sales tax
would decrease the amount you have to spend on other things. Decreases in
spending decreases the businesses profits on which income taxes are to be
collected. It's a pretty tough and viscous cycle. A balance is tough to
achieve I suspect. Not that anyone in DC or the statehouse or the
courthouse think about it when deciding about spending and taxes.

As far as the "use it or lose it", I counsel clients that spending $10 to
save $4 in taxes is kind of foolish if it's done for the sake of saving $4.
If you're going to spend the $10 at some point, then it comes down to
timing, which tax year do you want to take that expense in. And then with
respect to buying a piece of equipment or something, does the business need
that new computer, copier, etc....is it going to make them money or save
them money (irregardless of any tax consequences). If you spend the $10,
you've lost $10. If you don't spend the $10, you have to pay $4 in taxes,
but you get to keep $6. And in my book it's all about how much you keep to
keep.

That timing scheme works for individuals too, with respect to the timing of
deductions like charity, medical, etc. I have a client incurring a rather
large medical cost this last month or so, and we looked and decided he'd
benefit rather nicely if he could pay the bill off in this tax year instead
of splitting the costs into the next two years.

[paulthomascpa]

"Shawn Hirn" <sr...@comcast.net> wrote

> The other day, I heard a report on NPR where they called various
> congress critters who defend the Bush tax cuts. The reporter asked if
> the congress critters could provide one single example of a constituent
> who has hired more workers as a result of the Bush tax cuts on the
> wealthy. Not one congress critter was able to provide any proof. They
> reporter also called a local Chamber of Commerce, and asked the same
> question. Nada there too.

Call those same congresscritters and ask if they can point to one person
hired because of a tax increase. They can't (or won't) do that either.

Your point is pointless.

[Jack Schitt]

"paulthomascpa" <paultho...@bellsouth.net> wrote in message

news:VuydnbtXzIdi_XrT...@giganews.com...

Call those same congresscritters and ask if they can point to one person
hired because of a tax increase. They can't (or won't) do that either.

Your point is pointless.

*****************************
Tax increases or decreases have very little direct effect on hiring. If you
only paid 1% tax you would not hire someone unless you needed them.
If your tax rate was 70% and your volume of business had increased and you
were making good profits, you might need to hire more people.

What is really needed is not a higher tax rate, but an elimination of the
dozens of tax credits and many of the deductions geared to encourage certain
behavior. These could be eliminated, rates decreased and total revenue
increased. But, even more important, the government should eliminate a lot
of departments (the two Rick Perry was able to remember along with a few
others) and discontinue fighting these useless, unwinnable wars to "make the
world safe for democracy" or "nation building." We don't need to police the
world.

[scott s.]

"paulthomascpa" <paultho...@bellsouth.net> wrote in
news:VuydnbtXzIdi_XrT...@giganews.com:

Other than showing why NPR should raise its own funds and not depend
on the dole.

If expanding (or starting) a business requires capital, that's
going to have to come from after-tax income or loans. If growing
a business just means increasing expense, we could all have big
businesses. I suppose to some extent revenue is proportional
at or more than 1 to expense, but I wouldn't say that's the
general case.

scott s.
.

[paulthomascpa]

"Jack Schitt" <jsc...@gmail.com> wrote

> Tax increases or decreases have very little direct effect on hiring. If
> you only paid 1% tax you would not hire someone unless you needed them.
> If your tax rate was 70% and your volume of business had increased and you
> were making good profits, you might need to hire more people.
>
> What is really needed is not a higher tax rate, but an elimination of the
> dozens of tax credits and many of the deductions geared to encourage
> certain behavior. These could be eliminated, rates decreased and total
> revenue increased.

Agreed that the complexity and "unfairness" comes with the deductions and
credits at all levels. Elimination or reductin in those increases the tax
base which could allow for lower tax rates on everybody.

> But, even more important, the government should eliminate a lot of
> departments (the two Rick Perry was able to remember along with a few
> others) and discontinue fighting these useless, unwinnable wars to "make
> the world safe for democracy" or "nation building." We don't need to
> police the world.

Especially since we can't (or won't) police our own streets or borders.

[rosdianto]

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