Small Business for Dummies

Most Americans work hard at their jobs and look forward to getting a paycheck at the end of a period but have little knowledge of the process by which their employers function. They simply work for the business and think of their own income as being the amount on the face of the check and many have no idea of what is or is not purchased with the amounts deducted from their gross pay. Few have any idea of how or whether their employers are paid. Now, as Congress ponders the end of the tax cuts that President Bush initiated early in his tenure, it is difficult to separate fact from fiction in the arguments for and against that are being presented, particularly in the area of “small business” vs. “corporations”.

The Democrats propose to keep the tax cuts for individuals earning less that $250,000 per year while letting those for people earning more to rise to help cover the expenses of salvaging the national economy. In return, the Republicans are pleading for all the tax cuts to remain in place for the sake of “small business”. They tell us that any increase on those with taxable income of a quarter-million dollars a year will “devastate small business and sacrifice jobs”. Don’t buy that malarkey! A little knowledge of business, bookkeeping, and ownership will help wade through all the “bogie-speak” and let us understand what is being considered.

First, the proposed figures would apply to the individual income. That lets out the corporatinos, whether large or small. It would apply only to privately-owned businesses such as a home-service company that does things like plumbing or appliance repair, some car-repair shops, construction companies, or mom-and-pop neighborhood stores.

And the figure applies only to taxable income. That is the amount that the boss has left over after he has paid all the employees, matched their Social Security deductions, paid whatever contribution is necessary for the unemployment insurance, the insurance on the business facility and the equipment, the cost of any materials used or sold in the business, the repairs and utilities necessary to keep that equipment running, (the “cost of doing business), and any taxes, licenses, etc. that may be imposed on the business by the city, county, or state.

In determining the “taxable income” of the owner, first the gross is computed. This is the total amount collected from the goods or services by the business. In a business that is at all successful, that could be a staggering number! But then, so is the total number of the expenses which must be subtracted from it in order to determine the net profit or loss from the business. If one person owns the business, this will be their taxable income. If more than one person owns the business, that figure must be divided between them. In most cases, it will be a whole lot less than a quarter-million!

This knowledge, while simplified, may give one a better understanding of the issue at hand. It does not completely apply in the case of a corporation, beyond the basics, but they are taxed under an entirely different system involving things like “shares”, “reinvestment”, and other esoteric terms that are not necessary in a discussion of “small business”.

Why are the right-wing loud-mouths trying to scare you to death about the fair and necessary tax increase on the investor-class to whom George W. Bush handed the keys to the national treasury? Because they are the ones who do not want to pay their fair share! I hope the debate makes more sense once you truly understand the subject that is being discussed. As currently planned, the same bill that will increase the tax burden on the really-well-off will also carry an extension of the cuts for the low-income and a reduction for the middle class. That is you, so get out there and support it! When opponents strut around like pretentious hens, crying “Cut! Cut! Cut! Barack!”, you will know that they are full of “Cockle-Doo-Doo, too!” It is trite but true that the reason we must “tax the rich” is because the poor have no money.

This writer is eighty years old and has spent a half century working with handicapped and deprived people and advocating on their behalf while caring for her own working-class family. She spends her “Sunset Years” in writing and struggling with The System.

  2 comments for “Small Business for Dummies

  1. Gregory Iwan
    November 24, 2010 at 9:59 pm

    Finally, someone has opened the lockbox on this subject. I find that all too many “tiny business” owners do NOT “pay themselves,” and many are self-unemployed — that is, working solo out of a closet (think laptop in the closet). That to me is neither a job or a business. I was a self-employed (sic) real property appraiser for a few years back in the ’90s. I spent half my time “marketing” (it’s really begging), ten per cent of my time trying to collect fees owed me, and this left me with forty per cent of my time to actually work. So I tried to set my fees accordingly. Trouble was, Colorado had more appraisers per capita than any other western state at the time. Excess profits (or the illusion thereof) bring ruinous competition. Few economic adages are untrue; only those from the portion of the political spectrum that owes its knowledge of economics to the Mad Hatter. Bravo here! A good job, Mary Pitt!

  2. Mary Pitt
    November 24, 2010 at 10:36 pm

    Thank you, sir! I was inspired to a bit of ABC’s regarding business when I heard one of the Tea Party pin-up girls lamenting the fact that a small businessman who “grossed” a quarter mil would find themselves in trouble by the proposed tax hike. I thought that somebody should explain the difference between what is “grossed” and what is taxable. The right is always starting big lies and one could get worn out trying to correct them with the facts. You would be amazed at the number of working people who believe that they pay for their unemployment insurance by paycheck deductions. You and I know that it is paid by the government with contributions from the employer. sigh

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