Tag: Corporate Taxes

Simple understanding of business start up and tax incentives

So I just have to share my thoughts on this very topic as I keep seeing and hearing the argument from people who are not familiar in general business practice or even how businesses become a business…

Or how they always say that, “These are a ‘tax break’ for ‘big businesses’ only!”

First of all, let me say this… Big businesses used to start off small whether they started out as a corner store, mom and pop shop, out of your back yard, out of your garage, etc. This list can go on. The common logic approach, which I have noticed quite a lot is missing now-a-days, if these small businesses become more successful in what they do – they will grow bigger and eventually become a ‘big business’ that people tend to complain about.

And what do these small business that become a bigger business do? They provide job opportunities to everyone who just want to have a job, that do not have the drive or wish to be a business owner or to open, own and operate a business.

That’s why business owners are also called ‘entrepreneurs’.

This is the exact definition of what an ‘Entrepreneur’ is.

This goes back to my prior blog about what types of businesses are out there: President Biden’s Economic Policies

These business owners take all the financial risk in their business throughout the lifetime of operating their business. What do I mean by financial risk? They usually use their OWN MONEY to fund their business. I mean usually, some other business owners would take out a business loan (but still they use their own money generated back from their business to pay that loan back).

So there are many tax laws provided by the Federal Government, State Governments and local County or City Governments which provide incentives for these business owners to start or have their business in said city or state.

One of many which I won’t get into because the Federal Tax laws are in a whole other field of their own… are business start up costs. A simple explanation of business start up costs you can peruse on your own below and in the link provided.

Now, lets talk about tax incentives… Many cities or states provide various tax incentives for businesses to come to their location. Why? So these specific businesses provide jobs and additional opportunities to people who live in these locations that the business is possibly looking to move to.

It benefits the local community as a whole if that particular business moves there because: 1 – They provide job opportunities to people locally, 2 – Can help the local community be revived if it is at a standstill, 3 – can actually help other businesses in the surrounding environment.

A couple of examples I have experienced directly.

  1. Amazon over the past 2 to 4 years upgraded or replaced their delivery vehicles in our area.
    1. Newer Amazon delivery trucks are driving by when making deliveries locally. Many people, I’ve seen on social media, complained about Amazon not paying taxes or reporting $0 in taxes being paid. Well, many of these people do not realize that Amazon replaced or upgraded their delivery trucks – which in turn is a tax deduction for tax reasons under the Federal Government tax law. So maybe that is one of the reasons why they had little to no taxes paid because Amazon replaced their fleet of delivery vehicles – probably across the nation. Newer trucks means the Amazon people making those deliveries can get to you rather than using a beat up vehicle that can break down or their own vehicle that could break down (as well) while making deliveries because they’re carrying a lot of packages.
  2. Local big name car dealership in Georgetown helping local businesses and the surrounding communities
    1. This car dealership has survived in the Georgetown area for 50+ years and always gave back to the local surrounding communities to help the area stay alive and thrive. What’s an example? Well this car dealership provides free advertising for the smaller businesses in the area and spreads these advertising to the people who come to their dealership whether or not they are purchasing a car from them. And because they advertised these local businesses the businesses themselves are still open and thriving with all the foot traffic brought to them.
  3. Another example I have for you, an automotive repair shop – Austin Automotive – they’re one of many local repair shops in the Central Texas area. They have various locations in the Central Texas area but they could be a small business and you (yourself) may not know that. Just on the surface you could see this repair shop and automatically think – “Oh this is a big business! I do not like them.” But hold on… have some common sense here. What is considered a small business? Please see below of what is considered a small business from the IRS and from American Society for Quality (ASQ):

So a small business can be any of the below (as indicated above from the IRS and ASQ)

  1. IRS – the business owning business assets under $10,000,000 (basically the equipment, building/store front, etc.)
  2. 500 employees or less (Manufacturing and mining)
  3. 100 employees or less (Wholesale Trade)
  4. $6,000,000 in average annual revenue (Retail and Service industries)
  5. $28,500,000 in average annual revenue (General and Heavy construction industries)
  6. $12,000,000 in average annual revenue (Special Trade Contractors)
  7. $750,000 in average annual revenue (Agriculture)

Generally speaking, tax incentives are provided to all businesses regardless if the city or state wants that particular business to come to them (big OR small). And having these businesses come to the local areas (regardless if their big business or small business) these businesses and I will repeat this again…

It benefits the local community as a whole if that particular business moves there because: 1 – They provide job opportunities to people locally, 2 – Can help the local community be revived if it is at a standstill, 3 – can actually help other businesses in the surrounding environment.

I mean honestly, people who complain and moan about big business not paying taxes or have so many tax incentives do not realize the cause and effect of it all. How does it affect YOU personally? It does not. Why? Because you will usually pay the same amount of taxes almost each year.

These businesses pay a lot in taxes after the fact (AFTER) the tax incentives are passed their time – they usually have a set time frame of when tax incentives expire when the businesses takes off – become profitable, grows, etc.

So what does it matter to you if these businesses (small or big) don’t pay taxes now? The businesses will pay taxes later on and usually a hell of a lot more than you do as a person.

President Biden’s Economic Policies

I’m a not an economist nor a CPA. However, I do have quite a bit of a background in accounting, business management and operating a small business. So when I see some of the President’s tax and economic policies that may take place – it has me concerned.

Overall, I’m pretty sure quite a bit of us do not want to pay a huge amount in taxes. Whether it be monthly, quarterly or annually. I’ve been looking at past debates during the 2020 presidential election and I do not agree with taxes increasing overall. I honestly prefer more money in our pockets – doesn’t matter what spectrum we belong into under the Progressive Tax system that our Federal Government has in this country. Wouldn’t you agree, that you wish to have more cash “on hand” – in your pockets when you get your pay bi-weekly or monthly? I see it as common sense.

What sound person would not want to have more cash in their hands to do whatever with it, when they get paid? Use it to do whatever they’d like to: purchase clothes, travel to have that humbling experience around the country or abroad, support other business industries, donate to a charity they are interested in, or help out local businesses and communities in their areas, etc.

Here’s an example of Kamala Harris’ Economic Policies during her initial campaign as a Presidential candidate.

Here’s my take on some of the above mentioned. Some of it sounds similar to Biden’s proposal, but the underlying fact is INCREASE IN TAX. This goes back to my blog a few weeks ago about the “Laffer Curve“. Very informative video as well about the break down of the Laffer Curve.

So they want to eliminate former President Trump’s corporate tax decrease (was at 21%) and raise back up to 28% or 35% – who knows which one they’ll agree on. Here’s my thoughts on this increase in Corporate Tax… It affects ALL businesses – big or small – who is incorporated (C-Corporations).

Some of you who are not in the field of business or owning a business there are essentially 5 buckets of businesses. In the simplest way I can describe:

1 – Sole Proprietorship – you are the business and you are PERSONALLY liable for all of your business – from your money, to people you hire, to assets you buy to help operate this business.

2 – Limited Liability Company (LLC)

3 – S-Corporation – this entity will be personally liable for the assets, people you hire, money you’ve put it – but you are still the owner – but as a corporate officer.

4 – Partnership – you and your friends get together and form a business – But this partnership is an entity as it’s own and will be liable for anything – similar to S-Corporation. You nor your friends who are the partners are not personally liable – the partnership is.

5 – C-Corporation – this entity, similar to S-Corporation; however, C-Corporation is a taxable entity – under Federal Government. The liability is similar to S-Corporation, to where the C-Corporation entity will be personally liable for the assets, people you hire, money you’ve put it – but you are still the owner – but as a corporate officer.

Overall, small business – as some people may not understand – can EASILY BE ANY of the 5 above types of entities.

Small Business and Self-Employed Tax Center

Business Structures

Anyone can be a small business – as indicated in the IRS’ website noted above and by the image noted.

Where am I getting at with this? Well, if you are a “small business” and also operating a corporation, a profitable one, then under the proposed tax plan with the new President – your corporate tax will increase. The adverse affect would be, for you as a business owner, you’ll be paying higher taxes and have less disposable income (free cash on hand) to use it towards your business. Should you decide to hire more people, expand or upgrade your technology? You may have to put a hold on it then if your corporate taxes increase as a small business owner.

You may not realize that your neighbor, for example, owns an auto repair shop and is the mechanic as well. He may operate his business as a corporation for all we know. He, too, can be affected by this corporate tax increase proposed. From my perspective – the devil is within the details – and not many people realize to look at it that way. Only see that increase in these taxes will ONLY impact the 1% or the “big business”. Not sorry – but no.

A Biden Tax-Hike Break for Small Businesses

Granted the Wall Street Journal link above is an opinion piece – but how they worded the title of the article is hilarious.

In the above link, the Wall Street Journal has worded this article from the beginning “A Biden Tax-Hike Break for Small Business… Congress should raise the top corporate rate to 28%, but only for the most profitable companies…” Well no sh*t Sherlock. Only way you’ll pay taxes is if you have a net profit on your business (e.g. PROFITABLE)! You cannot pay taxes if your business incurs a loss. It’s like trying to divide a number by 0 – you cannot!