Help me understand the tax cuts and S Corp investing.

[Bonhomme Richard]

Maybe I have this all wrong because no one seems to talk about it.

I own a small business that is set up as an S Corp. Now it is true that all my company profit is taxed as personal income so yes, I would be personally taxed more ( if I made more than 250K which I certainly am not in this economy) if the cuts are not extended. That's all well and good but I don't get the connect with moving the economy forward. If my personal income is taxed at a lower rate I personally make out better but I don't base whether or not I expand or hire someone on personal income. I base it on whether or not that investment will benefit the company, ie. the bottom line, whether I personally get a break or not. As they say in business, if you are not moving forward you are dying.

Now, suppose that I don't get the tax reduction. What are my options? I could do nothing and just suck it up or I could lower my personal taxable income. Back in 2008 I had my best year and seriously thought about buying equipment or buying my own building...anything to reduce my taxable income. As it turned out I did nothing and had to pay more in taxes than I paid myself. That actually was my introduction to how S Corp profits are looked at since I hadn't made very much profit in the years before. It was a wake up call and if I put money into the business that money would not be taxable.

I guess my point is that those small businesses that do not get the tax break are more likely to spend on their businesses just to reduce their personal tax burden which is just the opposite of what all the conservative experts are saying. It seems to me that the best way to stimulate small business owners to spend or expand is to force them to hide profit back in the business which is what would happen if the bush tax cuts were allowed to expire for those who make over 250K. Why don't the Democrats use this to answer the republican push?

Am I crazy?

[DCKit]

1. I think you've nailed it. n/t

[LiberalAndProud]

2. No, you're not crazy.

[Ruby the Liberal]

3. No, you are not crazy. THIS is the EXACT narrative that we should be promoting.

When you invest in your business - even if it isn't direct jobs - you are providing for jobs for the equipment manufacturers or IT firms that you are paying for your upgrades.

Idiot Dems have let the Republican Cabal frame the debate that tax cuts = jobs. WRONG. Demand is what creates jobs. When you invest in equipment, you are adding to demand which hopefully will end with an increase in demand for the products/services you sell, meaning you then need to hire more workforce.

Economics 101 and you nailed it, my friend - and in a very easy to understand example. Well done. :toast:

[Bonhomme Richard]

4. Thanks. I was beginning to think that I'm nuts and have a....

inaccurate view of running a business since it seemed none of the experts mention any of this. I would be less inclined to invest if I got to pocket the money. Maybe I might buy stuff personally or I might not.
Without the tax cut I might even take a chance and hire someone since I would at least have to write off.

[lumberjack_jeff]

5. That's exactly right

Republicans defend the stupid using patently false anecdotes. E.g. give business owners tax breaks on their personal income, and they're more likely to splurge on more employees.

[Bonhomme Richard]

6. Why don't the Dems reply with the truth? It's easy enough

to understand unless al those business owners that get the break are very altruistic and will hire people willy nilly just for the good of the nation...........Not.