Tax Advice for Joe the Plumber

I work with small business owners. Small businesses like the one Joe the Plumber wants to buy can be structured as LLCs, sole proprietorships or "C" or "S" corporations. In each case, the taxes will be different. I think Joe should get a good accountant who will explain to him how he can lower his tax liability. Anyway, when Joe says that the business "makes" $250,000 to $280,000, does he mean that's the annual taxable income?

In my area, plumbers charge $100 to $120 per hour, and they charge for travel time. Most folks around here feel that is way too much. What do people making the minimum wage do when they have to call the plumber for $120 per hour? They try to fix the leak themselves. I don't have a problem with a bit more progressive tax rates when they are hitting people who earn that much. I mean when nursery school teachers make $20,000 per year and public school teachers make $40,000 to $60,000 per year in before tax dollars, why shouldn't Joe's profitable business pay three percentage points more on what he earns over $250,000 to help lower teachers' taxes and enable them to have a bit more money to pay the plumber in an emergency or to pay for heat in winter?

Actually, I'd really rather have a flat tax and no social security taxes for the lowest wage earners. No FICA on anyone earning $25,000 or less. It would be an instant raise for the lowest wage earners and an instant tax break for all companies employing them -- including the self-employed small business owners. Then, make the top earners still pay FICA. That could bail out the social security system and boost productivity.

The funny thing is that Joe the Plumber reminds me of Josephine the Plumber -- the old spokesperson for Comet cleanser.

Small Business Taxes

The Sunday New York Times ran a special tax section on February 10. One article focused on the tax costs and savings from owning your own business. Many people think it's great that they can deduct all their business expenses. However, they may not realize that they have to pay both sides of the employment taxes (Social Security and Medicare) -- the employer's and the employee's sides. You also have to set up books to track your business expenses separately from your personal expenses. You can read more of what the NY Times has to say at this link:
http://www.nytimes.com/2008/02/10/business/yourtaxes/10entre.html?ref=yourtaxes

Since tax time is rapidly approaching, I'll be writing more about this topic in the days to come.