Question regarding small businesses and taxes

Published on February 27, 2009 By ReuelKB In Politics

I have a question to anyone who might know. Does anyone know what percentage of those in the income bracket of $250,000+ are sole proprietors or partners in a small business? I'm still trying to look for the answer myself, so if I find out, I'll update it here. I have heard that 60% of those in that income bracket are small business owners, but if my understanding is correct (and please correct me if I'm wrong) is that many of those could own the business as an LLC for example in which case they are taxed at the corporate rate instead of the personal income tax rate. But if you are a sole proprietor, you get taxed at the personal rate, and so the tax increases coming up would effect them.

For the record, I'm firmly against these tax hikes, but I have heard that sole proprietors are generally considered non-employers, and that the businesses that do employ would still be taxed at the corporate rate, and thus would be unaffected. Like I said though, I'm still trying to figure it out, but if anyone happens to know something on hand, I'd appreciate it.

Also, does anyone have any recommendations, short of geting a CPA to get a general understanding of how many deductions sole proprietors get and other related tax issues. I myself don't like being so ignorant on the matter, and it's generally bad to argue a point with a lack of information.

Again, any information or recommendations would be much appreciated.

Comments

ReuelKB

on Feb 27, 2009

Hmm, couldn't figure out how to edit my post (only seem to be able to edit the title)

Update 1: Well, apparently you can have a sole proprietorship and have it be an llc as well. Thought they were seperate, but I guess not. I should probably research the different types of business there can be, and see which ones pay the corporate tax rate and which ones the personal tax rate.

Update 2: Okay, I think I have a better understanding now (if I'm wrong on any of this, let me know). You can have a sole proprietorship, a partnership, a C corporation, an S corporation, or an LLC. The sole proprietorship, partner ship, and S corporation are all taxed as personal income tax, while the C corporation is taxed as corporations (and the dividends, and owner's income are taxed as income tax). For an LLC, you can choose which way you are to be taxed. So the first group would be effected by Obama's plan, while the second group would not be as I understand it.

Update 3: Okay, I think I found the information I was looking for. 6% of those in a sole proprietorship make over $250,000, 33% of those in a partnership, and 40% of those in an S Corp make over $250,000.

aeortar

on Feb 28, 2009

many of those could own the business as an LLC for example in which case they are taxed at the corporate rate instead of the personal income tax rate. But if you are a sole proprietor, you get taxed at the personal rate, and so the tax increases coming up would effect them.

If you own a corporation and pay yourself via dividends, then you'll get taxed with the corporation tax rate on the profits from the company, and then taxed again on the income you take in the form of dividends (although not at such a high rate as if you'd got that income direct I think). I haven't checked the specific tax implications of Obama's policy so maybe the tax changes to personal tax don't affect dividend income, but assuming it's a change that affects all income then it would affect both types of individuals.

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