Any other small bidness owners here?

timwinters said:
The rest is taken in dividends. Just like you, we're running an S corp.
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I am curious about that. I run an S corp too. Seems like there are no such dividends available that would qualify for capital gains rates. Any distributions are from pre-taxed income. That income was passed through and included as Ordinary income at the prevailing tax bracket. You are not suggesting that you take dividends tax free are you? If so, I would like to know how... If not tax free, I would be interested to know if it is being taxed as capital gains, or ordinary income. That can be a big difference. I had always hoped to find a way to make the profits distributed as capital gains rates, but have yet to find such with an S-Corp.
 
Let'sgoflying! said:
holy crap. you do ride the line.
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Nahh, I just do business in a lot of states and they're all revenue hungry. Three of my audits were sales tax: MO, IL & OH. The other two were income tax: AR & Feds.

The bad part about contracting in multiple states, especially if I only do one project in a state, is that it costs dang near as much to prepare the returns as what I owe in taxes. And the preparation costs far more than the taxes in the cities that have income tax. And numerous cities, especially in the north & NE do. That part sucks.
 
skidoo said:
I am curious about that. I run an S corp too. Seems like there are no such dividends available that would qualify for capital gains rates. Any distributions are from pre-taxed income. That income was passed through and included as Ordinary income at the prevailing tax bracket. You are not suggesting that you take dividends tax free are you? If so, I would like to know how... If not tax free, I would be interested to know if it is being taxed as capital gains, or ordinary income. That can be a big difference. I had always hoped to find a way to make the profits distributed as capital gains rates, but have yet to find such with an S-Corp.
Click to expand...

No, it's not tax free but I'm almost positive that the dividends are taxed at the lower capital gains rate. I'll check w/ my accountant tomorrow and let you know for sure. But regardless of the rate, there are no payroll taxes paid on the "owner distributions".
 
timwinters said:
No, it's not tax free but I'm almost positive that the dividends are taxed at the lower capital gains rate. I'll check w/ my accountant tomorrow and let you know for sure. But regardless of the rate, there are no payroll taxes paid on the "owner distributions".
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They are still ordinary income unless you have some sort of capital gain that comes out of the business.
The only thing you save on is the payroll taxes, not too shabby as you have to pay all of them otherwise.
 
weilke said:
They are still ordinary income unless you have some sort of capital gain that comes out of the business.
The only thing you save on is the payroll taxes, not too shabby as you have to pay all of them otherwise.
Click to expand...

Yeah, your probably right.
 
BellyUpFish said:
I own my own company, but we don't do local sales, so taxes are a bit less of a headache.

Internet biz has its pluses..
Click to expand...

Ain't that the truth? I do still charge sales tax when someone in state places an order, of course. My state sales tax revenue is low enough that I only have to do an annual return and send them my $10-$15. Feels good, though, to ship stuff overseas and bring some cash back into the US for a change.

The Feds are a different matter entirely. The first few years it wasn't a big deal; last year I had to write the IRS a check for the first time in my life (for my personal return at least). Fortunately it wasn't a big one. If this thing grows much more I may have to start keeping tabs as I go along rather than just running all the totals after the end of the year. :) I spent more on postage last year than I grossed Year 1.

I like to say that my sideline business pays for my hobbies. That once was true, until it absorbed all the time I used to spend on said hobbies. Since then it's been paying for vacations -- nearly all of which have required a passport -- and now it will pay for airplane rental and CFI time. With a little tweaking I think I can make it pay for a hangar and operating expenses for something a little faster than my pickup.

Like I said, it would never be able to support us on its own -- but it doesn't have to, which is awfully nice.
 
Frequent audits are not indicators of riding the line as much as being reflective of the taxpayer's business activities. I've had the pleasure of IRS audits on ~15 of the 52 years of filed returns. My returns were "selected for examination" due to high income, high depreciation and interest deductions (from extensive investments in real estate and cable TV systems) coupled with a high percentage of charitable contributions. Owning and operating multiple business aircraft over most of those years probably played a small part as well.

At one time I think I figured out that I had paid roughly $25k in accounting fees for audit-related work (all deductible) and had generated net tax savings in excess of a mil (in total, not just from the years audited) from the investments, most of which created LTCG when sold. If that same trade-off were available now, I'd do it all again in a heartbeat.

Let'sgoflying! said:
holy crap. you do ride the line.
Click to expand...
 
Dividends are not capital gains.
 
skidoo said:
I am curious about that. I run an S corp too. Seems like there are no such dividends available that would qualify for capital gains rates. Any distributions are from pre-taxed income. That income was passed through and included as Ordinary income at the prevailing tax bracket. You are not suggesting that you take dividends tax free are you? If so, I would like to know how... If not tax free, I would be interested to know if it is being taxed as capital gains, or ordinary income. That can be a big difference. I had always hoped to find a way to make the profits distributed as capital gains rates, but have yet to find such with an S-Corp.
Click to expand...

If distributions exceed the shareholder's basis in the s corp, a taxable capital gain is created. That's why there's a lot of adjustments of "loans to and from shareholders" at the end of the fiscal year. Distributions from the adjustment account are not taxable, as that money has been taxed previously as ordinary income.
Or at least that's my layman's understanding of it.
 
I was a co-owner of a business years ago. None of the three of us knew much about business but I remember we had an accountant to tell us where and when to send in our taxes. I only wrote the checks. I also remember that there were many more tax advantages to being an owner than working as an employee. Nevertheless I figured out early on that I didn't really have the temperament to be an owner. Maybe I was too young (mid-20s) and was forced into it but I swore off business after that.
 
Chip Sylverne said:
If distributions exceed the shareholder's basis in the s corp, a taxable capital gain is created. That's why there's a lot of adjustments of "loans to and from shareholders" at the end of the fiscal year. Distributions from the adjustment account are not taxable, as that money has been taxed previously as ordinary income.
Or at least that's my layman's understanding of it.
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I have never been able to figure that out... Say one starts a one owner S-corp and reaches $5K invested in prior years before making any revenue. Then in the first year in one has revenue, the S-corp has a profit of $25K. As I understand it, that $25K is passed on to the one shareholder as ordinary income whether it is distributed or not. Say the shareholder does not take any distribution in that year. It looks like $30K is available to take in distributions. $5K was the original basis. I don't see how one can create an on-going stream of funds beyond the basis to treat such as a capital gain assuming there is not a sale of the S-corp.
 
What is the definition of "small bidness"?
 
skidoo said:
I have never been able to figure that out... Say one starts a one owner S-corp and reaches $5K invested in prior years before making any revenue. Then in the first year in one has revenue, the S-corp has a profit of $25K. As I understand it, that $25K is passed on to the one shareholder as ordinary income whether it is distributed or not. Say the shareholder does not take any distribution in that year. It looks like $30K is available to take in distributions. $5K was the original basis. I don't see how one can create an on-going stream of funds beyond the basis to treat such as a capital gain assuming there is not a sale of the S-corp.
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As long as your distributions don't exceed your accumulated profits, you 're good. But let's say your business borrows a large amount of cash, or sells stock or otherwise creates a large cash balance. If you then take a distribution in excess of your 30k basis, you've created a taxable cap gain. In that case, you'd probably want to create a loan to shareholder to gain access to the funds.
 
Chip Sylverne said:
As long as your distributions don't exceed your accumulated profits, you 're good. But let's say your business borrows a large amount of cash, or sells stock or otherwise creates a large cash balance. If you then take a distribution in excess of your 30k basis, you've created a taxable cap gain. In that case, you'd probably want to create a loan to shareholder to gain access to the funds.
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Doing either doesn't make sense to me. Suppose you had that $30K basis, and then borrowed $25K and then took a 50K distribution. You are saying that $20k or $25K of that would be taxed as capital gains? So, you would have to pay tax on that plus pay it back. Ouch! Then, suppose you had that same $30K basis, and then sold $25K in stock, again taking $50K in a distribution, again paying some capital gains taxes. What just happened to the new stock holder? Again, ouch!
 
McxMike said:
We have a small U.S. eagle ring business I started as a hobby 13 years ago while flying back & forth from Chicago area to Florida, every week for almost 7 years. Long flights like that tend to get boring by yourself & most of the designs were sketched out in the cockpit

We only employ two people and its been a rewarding experience since the people we deal with are patriotic, most have served (we're licensed by the USMC), and the products are my own creations.

We haven’t had a lot of taxes to pay since the company (S Corp) doesn’t make piles of money. We also don’t have a lot of overhead since we make the rings one at a time as the orders come in.
No complaints here…
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I have one of your Air Force rings. Very nice rings if anyone's looking for a ring to wear.
 
Interestingly, I figured out that 82% of the money I sent to the Feds yesterday goes to two enormous entitlement programs -- Medicare and Social Security.
**************************************************************

Jay, we see eye to eye on a lot of things, but not this one item...
That so called 'entitlement' of SSI is a life insurance policy that I paid the premiums on for 54 years...
Now the time has come to cash in the policy...
You are correct that I am entitled because I bought and paid for it - in cash, up front...

Medicare is probably more of a pure entitlement - I get it because I survived - OTOH, I paid Federal Income taxes right from day one in 1964 when LBJ signed it into law right up to this year... So, is it an entitlement or a benefit? <shrug>

So it boils down to I paid my dues, now it is your turn...

What I am sure we do agree on is that SS payments should not be going to illegal Haitians with AIDS...
That a worker who paid in for 60 months and left 3 kids under age five and a widow, who will now get four monthly SS checks until they turn 18...
That any alien who managed to get into the US legally before August 22, 1996 is eligible to file for SSI benefits...
And on, and on...

denny-o
 
Oh, and I neglected to point out that being an alien who entered the country "legally" includes Haitians and Cubans who managed to evade the Coast Guard and get their feet on the beach sand in Key West - with those sand coated toes they became a legal entry...

There, that ought to send this to the spin zone...

denny-o
OK you barfing, sweaty handed pilots I want a 3 turn spin to the right and recover precisely on a heading of 360 degrees...
(I don't do spins to the left, or anything to the left for that matter)
 
Kelvin said:
Well ya just bombed on your initial interview....:D
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Ha. Well, in my defense, most of the time I wasn't able to help with stage setup because I was chasing the infamouse 60hz 'hum' due to dirty power. The other times, I was just lazy.

So how much does blatant honesty count in you interviews? :D
 
Dr. O said:
That a worker who paid in for 60 months and left 3 kids under age five and a widow, who will now get four monthly SS checks until they turn 18...
Click to expand...

i don't believe that the widow gets a check. we only got 2 checks a month. one for me and one for my sister. thank you it paid for our college and my flying lessons.
 
skidoo said:
Doing either doesn't make sense to me. Suppose you had that $30K basis, and then borrowed $25K and then took a 50K distribution. You are saying that $20k or $25K of that would be taxed as capital gains? So, you would have to pay tax on that plus pay it back. Ouch! Then, suppose you had that same $30K basis, and then sold $25K in stock, again taking $50K in a distribution, again paying some capital gains taxes. What just happened to the new stock holder? Again, ouch!
Click to expand...


Let's say the corp borrowed $250k, you have $30k basis and you have a personal emergency that requires $50k. The corp is about to complete a project that will retire the debt.

If you take it as a loan, and you pay it back with minimal interest, (no loan fees or bank charges) to yourself and your stockholders, it's on the books as a shareholder loan. Of course, you can pay it back with your share of future distributions, since your basis has not changed.

Or, you can take a $50k distribution, pay cap gains on the extra $20k, and not have the debt, but you will pay tax on the distribution that exceeds your basis.

Whether it makes sense depends on your situation. Medical needs, once in a life time opportunity, who knows... If you take a distribution that bankrupts your company, and you're the sole shareholder, than you may have screwed yourself, but your gonna pay tax on it. If you take any distribution that reduces your basis to less than zero, the portion less than zero is a taxable cap gain. Just as you can't take a capital loss in a single year that exceeds your basis.
 
tonycondon said:
i don't believe that the widow gets a check. we only got 2 checks a month. one for me and one for my sister. thank you it paid for our college and my flying lessons.
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I think that's because your father made more than the income limit to receive checks. I was in the same situation. My mother received a check for me until I was 18 but she didn't get a check for herself because she worked. After that I got checks made out to me until I was 22 because I was a full-time student. This was before tax reform in the 1980s cut out that benefit. Like you, I am a pilot in large part because of that benefit.
 
Everskyward said:
I think that's because your father made more than the income limit to receive checks. I was in the same situation. My mother received a check for me until I was 18 but she didn't get a check for herself because she worked. After that I got checks made out to me until I was 22 because I was a full-time student. This was before tax reform in the 1980s cut out that benefit. Like you, I am a pilot in large part because of that benefit.
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You're making me wonder if people from single-parent (or effectively single-parent) households end up as pilots. My father wasn't around (his choice), and here I am.
 
Interestingly, I figured out that 82% of the money I sent to the Feds yesterday goes to two enormous entitlement programs -- Medicare and Social Security.
**************************************************************

Jay, we see eye to eye on a lot of things, but not this one item...
That so called 'entitlement' of SSI is a life insurance policy that I paid the premiums on for 54 years...
Now the time has come to cash in the policy...
You are correct that I am entitled because I bought and paid for it - in cash, up front...
Click to expand...

There are a lot of things I feel badly about, and this is one of the worst. The cretins in Congress discovered many years ago that Social Security was a fund they could plunder -- and plunder it they did.

Just like the airlines that used up their retiree's trust funds, our Congress frittered it all away on predator drones and saving the snail darter. We are now left to try to pay for the largest generation of retirees in history without the resources to do so.

Sorry, but those are the facts, and we can all stomp our feet and rip our shirts in anguish, but it won't change a thing. What we commonly call "The Greatest Generation" stole your (and my) retirement money, knowing that they would all be dead before the sh:*t hit the fan.
 
Ted DuPuis said:
You're making me wonder if people from single-parent (or effectively single-parent) households end up as pilots. My father wasn't around (his choice), and here I am.
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I don't know about the single parent thing, but I've heard somewhere that only children are more likely to become pilots. That would bode well for the future because I think being an only child is more common now than it was in the past. :dunno:
 
Chip Sylverne said:
Let's say the corp borrowed $250k, you have $30k basis and you have a personal emergency that requires $50k. The corp is about to complete a project that will retire the debt.

If you take it as a loan, and you pay it back with minimal interest, (no loan fees or bank charges) to yourself and your stockholders, it's on the books as a shareholder loan. Of course, you can pay it back with your share of future distributions, since your basis has not changed.

Or, you can take a $50k distribution, pay cap gains on the extra $20k, and not have the debt, but you will pay tax on the distribution that exceeds your basis.

Whether it makes sense depends on your situation. Medical needs, once in a life time opportunity, who knows... If you take a distribution that bankrupts your company, and you're the sole shareholder, than you may have screwed yourself, but your gonna pay tax on it. If you take any distribution that reduces your basis to less than zero, the portion less than zero is a taxable cap gain. Just as you can't take a capital loss in a single year that exceeds your basis.
Click to expand...

I still have trouble with those concepts. If I did take the $50K as a distribution, I would then have negative equity. What would happen to that first $20K of new profit. Would it then be considered pre-taxed, since capital gains were paid, or would it be taxed again as ordinary income? If it were considered pre-taxed, then consider this. Suppose the business were expecting a profit of $1M. If the sole shareholder borrowed $1M, and took a $1M distribution, paid $150K in capital gains, and then the $1M profit came in and the the loan paid off with no additional taxes? If so, it would seem smart to almost always do this. Or would another $350K in taxes due to ordinary income? If so, it would not seem smart to take such distributions as capital gains.

I am thinking I am stuck with keeping it simple, no loans, no additional shares sold, and distribute all profits as ordinary income. I just keep wondering if I am missing some way to transform what would have been ordinary income to capital gains instead.
 
Dr. O said:
Interestingly, I figured out that 82% of the money I sent to the Feds yesterday goes to two enormous entitlement programs -- Medicare and Social Security.
**************************************************************

Jay, we see eye to eye on a lot of things, but not this one item...
That so called 'entitlement' of SSI is a life insurance policy that I paid the premiums on for 54 years...
Now the time has come to cash in the policy...
You are correct that I am entitled because I bought and paid for it - in cash, up front...

Medicare is probably more of a pure entitlement - I get it because I survived - OTOH, I paid Federal Income taxes right from day one in 1964 when LBJ signed it into law right up to this year... So, is it an entitlement or a benefit? <shrug>

So it boils down to I paid my dues, now it is your turn...

What I am sure we do agree on is that SS payments should not be going to illegal Haitians with AIDS...
That a worker who paid in for 60 months and left 3 kids under age five and a widow, who will now get four monthly SS checks until they turn 18...
That any alien who managed to get into the US legally before August 22, 1996 is eligible to file for SSI benefits...
And on, and on...

denny-o
Click to expand...

An alternative view...

You paid in your dues. You also allowed your congressmen to take all your dues and spend them on other things you wanted. Yet you still want "what you've got coming".

I heard that view point the other day, and I can see some of the merit in it.
 
Last time I counted there were about 532 of them sumbitches that I couldn't vote for or against. Why should I feel any responsibility for their votes?

TMetzinger said:
An alternative view...

You paid in your dues. You also allowed your congressmen to take all your dues and spend them on other things you wanted. Yet you still want "what you've got coming".

I heard that view point the other day, and I can see some of the merit in it.
Click to expand...
 
Dr. O said:
Jay, we see eye to eye on a lot of things, but not this one item...
That so called 'entitlement' of SSI is a life insurance policy that I paid the premiums on for 54 years...
Now the time has come to cash in the policy...
You are correct that I am entitled because I bought and paid for it - in cash, up front...
Click to expand...
I have no problem with you or anyone else collecting SS but this is not how I think of it at all.

I pay in now and that money goes to pay someone else. My future benefits are somewhat determined by what I have paid in but there is not some account set aside for me where all of it is stored. I might not make it to retirement age and therefore collect nothing or I might live to be 100 and collect for 30+ years. That's just the way the system works. It's a social safety net and I have no problem with the concept. It would be nice if the inflows and outflows would be more in balance, however.
 
Everskyward said:
I don't know about the single parent thing, but I've heard somewhere that only children are more likely to become pilots. That would bode well for the future because I think being an only child is more common now than it was in the past. :dunno:
Click to expand...

That may be, although it doesn't fit the pattern of you, Tony, and me.
 
Everskyward said:
I have no problem with you or anyone else collecting SS but this is not how I think of it at all.

I pay in now and that money goes to pay someone else. My future benefits are somewhat determined by what I have paid in but there is not some account set aside for me where all of it is stored. I might not make it to retirement age and therefore collect nothing or I might live to be 100 and collect for 30+ years. That's just the way the system works. It's a social safety net and I have no problem with the concept. It would be nice if the inflows and outflows would be more in balance, however.
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Would be nice if I could believe it will be there for me in twenty years

Sent from my ADR6300 using Tapatalk
 
Everskyward said:
I'd be satisfied if I knew that I was going to be around in 20 years. Life is a crapshoot.
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I assume it won't be around at all, and I'm just paying into it with no return.

Thus, I plan my retirement accordingly. If I get it, woohoo! That means more money to party like I'm 99!
 
That's enough on this subject. Just keep your head down, keep on working and keep on paying in. Puleease! We're counting on you.;)

Everskyward said:
I have no problem with you or anyone else collecting SS but this is not how I think of it at all.

I pay in now and that money goes to pay someone else. My future benefits are somewhat determined by what I have paid in but there is not some account set aside for me where all of it is stored. I might not make it to retirement age and therefore collect nothing or I might live to be 100 and collect for 30+ years. That's just the way the system works. It's a social safety net and I have no problem with the concept. It would be nice if the inflows and outflows would be more in balance, however.
Click to expand...
 
wabower said:
That's enough on this subject. Just keep your head down, keep on working and keep on paying in. Puleease! We're counting on you.;)
Click to expand...
Haha. I occasionally go to lunch with some of my cousins and my mom. They tell me I need to keep working to keep their SS and Medicare money coming in. I'm the only one who is not retired. I need to get with the program.
 
Jay Honeck said:
Worse, in the hospitality business, most of these taxes are revenue -- not profit -- based. In other words, we pay them whether we make a nickel or not, unlike most taxes. ...
Click to expand...
Do you pay or do your customers pay? At almost all the mo-hotels I've stayed at the "hotel/motel/restaurant tax" was clearly added onto the bill. The mo-hotel operator was just a trustee of that tax money...the tax that I paid...until it is sent the appropriate entity. But, they in no way paid the tax. I did.

Jay Honeck said:
Interestingly, I figured out that 82% of the money I sent to the Feds yesterday goes to two enormous entitlement programs -- Medicare and Social Security. ...
Click to expand...
Again, isn't roughly 50% of this money paid by your employees? Aren't you just the trustee of this money until you cut a check?

Unless your operation is quite a bit different that those I've experienced, you're just a "collector and forwarder" but not a payer of most what you've outlined.

Jay Honeck said:
Texas rocks! :yesnod:
Click to expand...
I sure do agree on that one. "First in pollution & last in literacy". What's there not to like!?!? More detail from 2009 stats:

Tax Revenue Raised Per Capita = 49th

Average Teacher Salary = 49th

Current Expenditures Per Student = 44th

Percent of Adult Population With a [HS] Diploma = 50th

Percentage of Uninsured Children = 1st

Percentage of Children Overweight = 5th

Teenage Birth Rate = 1st

Percentage of Women with Health Insurance = 50th

Percentage of Population Uninsured = 1st

Average Credit Score = 50th

Air Pollution Emissions = 1st

Amount of [VOC's] Released into Air = 1st

Amount of Toxic Chemicals Released into Water = 1st

Amount of Recognized Cancer-Causing Carcinogens Released into Air = 1st

Amount of Hazardous Waste Generated = 2nd

Amount of Carbon Dioxide Emissions = 1st

THAT ROCKS!!!

Jay Honeck said:
Nothing personal, but that pretty well sums up my experience with building contractors. After owning my own businesses for over 20 years, and employing dozens of contractors in various jobs, I no longer do business with ANY of them, unless forced to by law. Everything in your industry seems to be "fast and loose" -- and I'm not just talking about workmanship.
Click to expand...

By the way...I do take this personal (in case you can't already tell)...please don't ever make unsubstantiated and public accusastions that I'm dishonest ever again. Conversely, maybe you can chalk up your own experience with contractors to (what mom used to always say) "water seeks its own level".
 
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