"Undermining my electoral viability since 2001."

Outlandish Josh

Published on Tue, 2008-04-15 20:51

That's One For You Nineteen for Me....

The taxman cometh. I just forked over about 52% of my total take-home income from the past year to the federal government and state of California. This is where having a business that works out becomes painful, though I can't help but think that a more devious accountant (yes, more devious than a ninja) could have done at least a little bit better.

In many ways the deck is stacked against us entrepreneurial types. We're taking advantage of the simplest and most flexible business structure, the LLC. We still pay self-employment tax, and our desire to build up the business and hire people means we're leaving money in the bank that we could be taking for ourselves, yet the IRS considers that as profit from a business and personal income whether we draw it or not.

So in an effort to expand we knock ourselves up a couple tax brackets without increasing our take-home pay a cent. I've been saving for it since last fall, but it still feels mightily deflating. No refund for me.

Oh well. First-world problems. If you're on the other side of the great class divide and wondering what to do with your Bush Money, here are some neat ideas.

Responses

Tue, 2008-04-15 22:09 — Sam Tresler

Commiseration. Not quite as bad, but still feeling the pain this year as I am down more money than I can easily spare. I don't mind paying my fair share, but can't quite figure out how my fair share is more than other people fair share. I'm all for the progressiveness, but somehow I think fostering small American business would have a place in that agenda besides loosely secured loans.

Wed, 2008-04-16 00:27 — Outlandish Josh

Well, on the flip side when you're formally employed, your boss is paying more on your behalf, so there's that.

But if it's hard to pay, just don't. The IRS is a pussycat compared to MBNA.

Thu, 2008-04-17 00:55 — Sam Tresler

How is this the flip side? Perhaps the biggest hump in being a small business is switching from 1099 contractors to w-2 employees. You get nailed for whatever taxes you would normally need to pay as joe citizen, plus the self employment tax, then the company has to pay part of the employees tax. I've ben on the cusp of it a couple of times and this 'bonus' keeps a lot of small businesses down. I have seen it put more than one small business under.

Don't get me wrong, I am formally employed now; my self employment from last year was the first 4 months of the year. But I still don't necessarily agree with the 'stick it to the business' mentality that our tax structure takes all to often. It kills small business and fosters big business. Incidentally, this is my biggest beef with most health care plans. Whilst I'm all for health care, most plans try to stick it to the employer, and frankly that's a death knell for entrepreneurs.

Thu, 2008-04-17 17:48 — Outlandish Josh

What I means was that as an individual, the move between 1099 and w-2 decreases your tax burden in large part because it increases the tax burden of the entity which employs you. Taxation has a thermodynamic quality like that. It's not as thought payroll tax revenues are higher from incomes of self-employed individuals; it's simply that the individual shoulders all the burden instead of splitting it w/his or her boss. You generally get paid less as a result if you make the switch from contract to employee.

On the other hand, if you're (un?)lucky enough to go from 1099 indie contractor to filing a k-1 and having employees, then you've just jumped up a couple levels -- which could be really good -- and you're in for some increased costs, although monies spent on wages are fully deductible.

I don't think it's really a question of who's getting it "stuck to them." If you lower the costs on employers, you raise them on employees, many of whom can ill afford having it stuck to them any harder. It would be nice if we didn't have to pay taxes, but I kind of like roads and stuff.

Still, we'd all be better off as hedge-fund managers, or running businesses big enough that they work on revolving credit and never show taxable profits. ;)

Wed, 2008-04-16 02:42 — Mike

killed me as well. I was putting aside about 30% of my earnings for tax purposes, thinking I had my bases covered. Alas, it was not so . . .

I'm with Sam. I don't mind paying my share, but my share seems ridiculously expensive compared to others making similar salaries. My pay actually went up about 10k in the last quarter of the year, yet somehow I'm still treading water . . .

Wed, 2008-04-16 02:53 — Nikkiana

I might as well join the commiseration party too. I was still technically self-employed this year...

I'm not entirely sure which part was more painful... the making out the check part or the fact that I was woefully unprepared to deal with all the things you can write off when you're working at home.. Especially since I'd had the bright realization that paper bills kill trees and went digital, and then I moved... which meant I no longer had digital access to the accounts to which I paid. Whoops.

Oh, and did I mention my accountant mother does my taxes? Yeah, there's nothing like a hefty dose of parental beration and shame over the fact that you can't seem to balance a checkbook in exchange for tax advice. Sigh.

I guess it could be worse. At least I can drink to no state income tax and state owned liquor stores. Viva Nueva Hampshire!

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