The Obama Tax plan -- Gross or Net

[Falconara]

I have stupid question along the lines of the tax plan....and I dont know if this belongs in another thread or in it's own but I was wondering so I thought I would ask.

I kind of need to set up the scenario for you to : for six years my Dad has managed the Vespa Washington store to be one of the top ten grossers in the country (for Piaggio, USA : the parent of Vespa). However...due to the bad money management practices of the owners, the store is going bankrupt.

So here is my Dad and all his employees including the service guys....out of a job. They've been talking about purchasing a store and reopening the franchise as the new owners...they've found a store in friendship heights that is a good size, good location, and is affordable. They'r eplanning on going through the small business beareau for the loan to start up.

Now into the thing I was wondering....In a couple of years it is very possible that my Dad and his partners will be grossing 250,000+...and all this after working it from the ground up. HOWEVER - their net income will be far less then that -- they'll be paying of the expenses of purchasing the bikes, the loan for the startup, the cost of real estate in a posh location of Washington DC...in fact they'll probably be making just enough net to get by with paying themselves.

So my question about the Obama Tax plan is the 250,000 Gross (Overall Income) or Net (Gross - expenses).

I'm curious because this is my family...and I can't see the business getting off the ground if they tax the Gross income when the net is going to be so small in the first few years. I havent been able to find any references to the net vs gross anywhere....so if you could show me where it is that would be awsome.

~Cate

PS....my Tax experience is limited...i know the big words....but other than that Dad helps me with my own

 

[borzoimom]

The other thing that is frightening about his tax plan is that it actually would discourage businesses.
If a business has like say 20 employees, that obviously makes more money than say a business with 10 employees, the higher tax for having more employees that are say working in a trade ( generating revenue) would be higher.. Solution- hire less employees and run their butts off..

 

[Falconara]

I'm not trying to start a debate here...I dont want to go into what is scary and what isnt...I just want to know the answer to whether or not it is gross or net.

~Cate

 

[Boemy]

I think it's net. I'll see if I can find confirmation on that.

 

[Gempress]

I could be wrong, I'm no accountant. But I believe it would be net. Business expenses are tax-deductible, and I don't remember Obama's plan changing that. His plan does propose a change to capital gains taxes, but I think it may be favorable for your dad. His plan proposes to eliminate capital gains taxes for those who invest in small businesses.

 

[~Jessie~]

I will say it's net with 99.9% certainty

 

[release the hounds]

It's net. and the only business it will discourage are the people too scared or lazy to start one anyway. Nobody in this country is denied opportunity if they want to work hard

 

[FoxyWench]

im almost certain its NET, many expenses are tax writeoffs AND any losses are writeoffs too.
the PLAN of this one is to better support SMALL buisnesses.

 

[CaliTerp07]

It should be net. Think about it in the extreme. If your dad lost money (his operating expenses outweighed his income), they wouldn't tax the large income. You'd get to write it off as a loss on your taxes.

http://www.answers.com/topic/net-income

Investopedia Says:
1. Net income is calculated by starting with a company's total revenue. From this, the cost of sales, along with any other expenses that the company incurred during the period, is removed to reach earnings before tax. Tax is deducted from this amount to reach the net income number. Net income, like other accounting measures, is susceptible to manipulation through such things as aggressive revenue recognition or by hiding expenses. When basing an investment decision on net income numbers, it is important to review the quality of the numbers that were used to arrive at this value.

2. For example, suppose that your gross income is $50,000 and you have $20,000 in deductions and credits. This leaves you with a taxable income of $30,000. Then, suppose that another $5,000 of income tax is subtracted; the remaining $25,000 will be your net income

It shouldn't have anything to do with Obama OR McCain winning the office. The percent of taxes he pays may change, but what he pays taxes on should be the same with any president.

 

[~Jessie~]

Most small businesses don't make over $250,000 in profit a year, so they won't even deal with Obama's tax increases anyway.

 

[borzoimom]

Most small businesses don't make over $250,000 in profit a year, so they won't even deal with Obama's tax increases anyway.

It depends on if its a trade type in business. If someone has 20 welders doing jobs all over they could.. (or other similar trades..)

 

[Falconara]

Actually, the business he was managing grossed more than 250,000....and it definetley was a small business.

This one will probably be operating as a corp with six or seven owners and initially no employees I believe (since the owners will be the employees).

Thanks for the answers ya'll. Like i said...I am not entirely clear on how this all works...especially with the write offs. Does paying for the stuff (in this case scooters) you are selling count as a business expense that you get a writeoff for?

~Cate

 

[FoxyWench]

stock can ONLY be counted as a writeoff if the company goes out of buisness and the stock is not sold.

 

[Lilavati]

Actually, the business he was managing grossed more than 250,000....and it definetley was a small business.

This one will probably be operating as a corp with six or seven owners and initially no employees I believe (since the owners will be the employees).

Thanks for the answers ya'll. Like i said...I am not entirely clear on how this all works...especially with the write offs. Does paying for the stuff (in this case scooters) you are selling count as a business expense that you get a writeoff for?

~Cate

I'm not an expert on corporate tax, however:

You write off business expenses. There are rules for how inventory is accounted for, and although I don't have my tax book around, I know that you are basically taxed on profits, not on gross income. So, that shouldn't be a problem.

The bigger issue here is that the 250,000 is related personal income tax, not corporate tax. If your father and his partners took home $250,000 in taxable income as individuals, then they would be hit with somewhat increased taxes. But unless they make enough money that each of them personally takes home that ammount, the higher tax rate doesn't effect them. Further, note that you need to make significantly more than 250k to have 250k taxable income! In any case, a business making a quarter millon is not taxed as personal income tax, but under corporate tax rates and rules, with their own exceptions for "small" vs. "large" businesses.

That's why all the fuss about small businesses and the 250k is so odd. A successful small business person could conceivably bring home more than 250K . . . but then, so does about 12% of the population. Its not related to the value of the business or the income of the business . .it is related to how much income a human person has that is considered taxable. Indeed, if you are a small business owner who has properly incorporated your business, you can get around it by paying yourself less than $250k if you are married or $200k if you are single.

 

[~Jessie~]

It depends on if its a trade type in business. If someone has 20 welders doing jobs all over they could.. (or other similar trades..)

98% of small business make LESS than $250k in net profits

If you buy something for $20 and sell it for $100, your profit would only be $80. The $20 is a business expense.

It doesn't include rent or cost of employees... you'd have to make more than $250k in pure profits to be affected by this.

And here's a simple explanation of net profit from wikipedia:

"In simplistic terms, net profit is the money left over after paying all the expenses of an endeavor. In practice this can get very complex in large organizations or endeavors. The bookkeeper or accountant must itemise and allocate revenues and expenses properly to the specific working scope and context in which the term is applied."

 

[Falconara]

He certainly wont be bringing home 250K....he would be lucky to bring home 50....which is barely enough to live in DC....I'm not worried so much about that though...I'm more worried about the income of the business he and his partners are running so that he can get paid.

So what is the tax plan that is going to be incorporated on the corporations then?

It will be something of a double...the Vespa stores are boutiques and are supplied by Piaggio USA (the USA equivalent of Piaggio in Italy); which is a rather large corporation and does supply stores throughout the country.

The smaller aspect will be the boutique itself which will sell the vespas/scooters as well as perhaps some motorcycles...I know one of his dreams is to make an urban vehicle store (scooters, motorcycles, smart cars etc...) so it may turn into that.

I imagine Piaggio is going to get increased taxes because it is a larger cororation...which will probably mean some increase costs for the products dad has to turn around and sell...but what about the smaller corporation?

~Cate

 

[MelissaCato]

So my question about the Obama Tax plan is the 250,000 Gross (Overall Income) or Net (Gross - expenses).

If you take a look at the NFIB, it's clear all business with 20-249 employees will suffer seriously. Gross/Net doesn't matter. What will happen is the business that don't want to expand as a corporation IE: Webers Saw Mill will be effected by Obama's tax. These type business have been around for decades, stay below the 250 employee mark, pay good, have bonus's and money clubs, 401K, stocks etc.
If Obama is elected and demands this tax on these type business's, people will loose jobs quicker than ****. Layoff's for sure. The people they decide to keep, hours will be cut, because this tax directly controls all labor costs. That's Obama's plan. Which means employees won't be able to have money clubs and the business will halt all previous company paid employee bonus's. Wonderful huh?
All the while the owners will be strugglin' to keep the business open with the current economy. Soon depression. It's coming fast.
Business's will close. Government sponsored Corporations will step in and buy the business and whhaaalaaaa ... Webers Saw Mill renamed, now a government sponsored corporation ... somewhere in another country.

This is the Job creation with Obama, courtesy of his "tax".

Economy in the 3Q today .. http://www.youtube.com/watch?v=G1fFutWQ86w

 

[Lilavati]

He certainly wont be bringing home 250K....he would be lucky to bring home 50....which is barely enough to live in DC....I'm not worried so much about that though...I'm more worried about the income of the business he and his partners are running so that he can get paid.

So what is the tax plan that is going to be incorporated on the corporations then?

It will be something of a double...the Vespa stores are boutiques and are supplied by Piaggio USA (the USA equivalent of Piaggio in Italy); which is a rather large corporation and does supply stores throughout the country.

The smaller aspect will be the boutique itself which will sell the vespas/scooters as well as perhaps some motorcycles...I know one of his dreams is to make an urban vehicle store (scooters, motorcycles, smart cars etc...) so it may turn into that.

I imagine Piaggio is going to get increased taxes because it is a larger cororation...which will probably mean some increase costs for the products dad has to turn around and sell...but what about the smaller corporation?

~Cate

As I said, I'm not an expert in corporate tax. All lawyers with half a brain take Income Tax, because its self defense. However, I did some poking around and found that what Obama says he will do is eliminate capital gains tax for small businesses (not likely to help you, alas) and even out the corporate tax rate, so that the overall rate is lower, but there are fewer loopholes for big businesses to exploit. He's also planning some tax breaks and federal assistance programs for small businesses.

McCain would cut corporate taxes and allow companies to depriciate new equipment in one year.

Frankly, its hard to tell which would help more. Obama's plan is more targeted to assist small businesses (in perference to large ones).

Wait . . . is your Dad's company a partnership or a corporation? Technically? Because if its a partnership, they are all taxed as individuals. If its a corporation, see above.

 

[CaliTerp07]

If you take a look at the NFIB, it's clear all business with 20-249 employees will suffer seriously. Gross/Net doesn't matter. What will happen is the business that don't want to expand as a corporation IE: Webers Saw Mill will be effected by Obama's tax. These type business have been around for decades, stay below the 250 employee mark, pay good, have bonus's and money clubs, 401K, stocks etc.
If Obama is elected and demands this tax on these type business's, people will loose jobs quicker than ****. Layoff's for sure. The people they decide to keep, hours will be cut, because this tax directly controls all labor costs. That's Obama's plan. Which means employees won't be able to have money clubs and the business will halt all previous company paid employee bonus's. Wonderful huh?
All the while the owners will be strugglin' to keep the business open with the current economy. Soon depression. It's coming fast.
Business's will close. Government sponsored Corporations will step in and buy the business and whhaaalaaaa ... Webers Saw Mill renamed, now a government sponsored corporation ... somewhere in another country.

This is the Job creation with Obama, courtesy of his "tax".

Economy in the 3Q today .. http://www.youtube.com/watch?v=G1fFutWQ86w

Umm, okay. I just poured over NFIB's site, and I'm pretty sure it doesn't say any of that.

http://nfibelection2008.illumen.org/positions_taxes.jsf

 

[Falconara]

From what I understand it will be a corporation...and I guess the best way to describe the boys will be that they will all be the board members and own a certain percentage of it / (or shareholders)

~Cate