3 ms·

Whoa, so any small business owner who is more or less successful is considered the 1%? The situation is worse than I thought... Seriously, I think the 1% shoul

Whoa, so any small business owner who is more or less successful is considered the 1%? The situation is worse than I thought... Seriously, I think the 1% should include only those earning over 500K a year (there's about... oh 1% of them in the world :-))...

lsc 15y ago
depends a lot on if you count capital gains. My understanding is that if you include those, (which really, you'd have to; most really wealthy people earn most of their money through capital gains rather than salary) you have to be well north of a million a year to be in the top 1%.
- garethsprice 15y ago
  Here's a great interactive tool from IBM, based on 2010 data: http://www-958.ibm.com/software/data/cognos/manyeyes/visualizations/income-percentiles-for-2010-by-typ http://www-958.ibm.com/software/data/cognos/manyeyes/visuali... 99% = $515k taxable household income, which I believe includes capital gains. It's a hard L-shaped graph though, the difference between 30 and 40% is under $10k, but the real jumps don't come until the mid 90% range.
SomeCallMeTim 15y ago
No. You need $380,000 in income, i.e., PROFIT, from a small business to be considered part of the 1%. A "successful" small business owner could take in $2-3M in receipts and still only clear $150k a year after expenses. Or less. Some businesses don't have much of a margin. And most don't have more than a few hundred k a year of receipts. That's what I find crazy about all of the "you'll hurt small business!" anti-tax rhetoric. If it's only targeting more than $380k in PROFIT (for a sole proprietorship, or that much per owner for a partnership/jointly owned business), then raising the MARGINAL tax to 50% or higher would only encourage the business owner(s) to spend the money on expanding their business instead of buying a second yacht.
- lsc 15y ago
  Yeah, I see something similar about the capital gains debate. You only pay capital gains when you /sell/ your business. If you want to take money out of an existing business, you have two options; issue a dividend (and pay both corporate taxes /and/ capital gains taxes, which usually makes the second option attractive) or pay yourself bonus/salary at the usual tax rates. A lower capital gains only helps you if you are building to flip.
  - SomeCallMeTim 15y ago
    >issue a dividend (and pay both corporate taxes /and/ capital gains taxes This is only true if you're a C-corp. I know on HN most folks are creating a C-corp because it's easier to invest in, but if you're doing a small business, a partnership, S-corp, or LLC filing as an S-corp are likely the best options for you. In all three of the latter cases, taking money out only causes you to be taxed once.
    - lsc 15y ago
      right, I'm an S corp. you get taxed once, but you pay the income tax rate, as if it were salary or bonus, so you still end up paying well north of twice the capital gains rate.
- jakeonthemove 15y ago
  That's exactly what I meant - most small business owners don't generate more than $500K (or even $380K), therefore they're not the 1%. And I agree that raising the tax for large companies that do have those kinds of payouts to their executives and employees would make them reinvest into the business to avoid paying said tax in full, which is still better than them taking it home. But then again, there will always be a way to evade that, especially when you've got millions of dollars on the line...

lsc 15y ago

depends a lot on if you count capital gains. My understanding is that if you include those, (which really, you'd have to; most really wealthy people earn most of their money through capital gains rather than salary) you have to be well north of a million a year to be in the top 1%.

garethsprice 15y ago
Here's a great interactive tool from IBM, based on 2010 data: http://www-958.ibm.com/software/data/cognos/manyeyes/visualizations/income-percentiles-for-2010-by-typ http://www-958.ibm.com/software/data/cognos/manyeyes/visuali... 99% = $515k taxable household income, which I believe includes capital gains. It's a hard L-shaped graph though, the difference between 30 and 40% is under $10k, but the real jumps don't come until the mid 90% range.

SomeCallMeTim 15y ago

No. You need $380,000 in income, i.e., PROFIT, from a small business to be considered part of the 1%. A "successful" small business owner could take in $2-3M in receipts and still only clear $150k a year after expenses. Or less. Some businesses don't have much of a margin. And most don't have more than a few hundred k a year of receipts. That's what I find crazy about all of the "you'll hurt small business!" anti-tax rhetoric. If it's only targeting more than $380k in PROFIT (for a sole proprietorship, or that much per owner for a partnership/jointly owned business), then raising the MARGINAL tax to 50% or higher would only encourage the business owner(s) to spend the money on expanding their business instead of buying a second yacht.

lsc 15y ago
Yeah, I see something similar about the capital gains debate. You only pay capital gains when you /sell/ your business. If you want to take money out of an existing business, you have two options; issue a dividend (and pay both corporate taxes /and/ capital gains taxes, which usually makes the second option attractive) or pay yourself bonus/salary at the usual tax rates. A lower capital gains only helps you if you are building to flip.
- SomeCallMeTim 15y ago
  >issue a dividend (and pay both corporate taxes /and/ capital gains taxes This is only true if you're a C-corp. I know on HN most folks are creating a C-corp because it's easier to invest in, but if you're doing a small business, a partnership, S-corp, or LLC filing as an S-corp are likely the best options for you. In all three of the latter cases, taking money out only causes you to be taxed once.
  - lsc 15y ago
    right, I'm an S corp. you get taxed once, but you pay the income tax rate, as if it were salary or bonus, so you still end up paying well north of twice the capital gains rate.
jakeonthemove 15y ago
That's exactly what I meant - most small business owners don't generate more than $500K (or even $380K), therefore they're not the 1%. And I agree that raising the tax for large companies that do have those kinds of payouts to their executives and employees would make them reinvest into the business to avoid paying said tax in full, which is still better than them taking it home. But then again, there will always be a way to evade that, especially when you've got millions of dollars on the line...