Sep 19, 2014
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Economic Sense

RSS By: Matt Bogard,

Matt's primary interest is in the biotech industry and ag policy.

Taxing our Farms and Businesses

Mar 08, 2009
What meets the criteria for being a small business? See this link from the Small Business Administration.

The link above provides a table for size standards regarding annual receipts.

'For the most part, size standards are the average annual receipts or the average
employment of a firm.'

'A size standard is the largest that a concern can be and still qualify as a small business for Federal Government programs.'

This is what our government considers to be classified as a small business. Firms can be earning millions per year, but still be classified as a small business.

Corn,Wheat, Soybean production — $750,000
Cattle Ranching — $750,000
Cattle feedlots $2.5M
New Single-Family Housing Construction — $33.5M
Concrete, framing, roofing, masonry, plumbing and other contractors— $14M

These numbers represent maximum incomes. Many small businesses may not earn this amount. A good question is, what percent of these small businesses actually earn over $250K per year. And, secondly how many are taxed as 'sole prorprietorships' and are subject to income tax increases for those earning over $250K per year?

Even if it turns out to be a small percentage, it is important to note that a small percentage of a large number is still a large number.

For example, in California ( see link  to a CA state government web page) only .8% of all sole proprietorships earned between $200K and $299K in 2005, but there are 2.6 million sole proprietorships in California. That's a total of around 20,000. In addition there were about 15,000 businesses in California earning over  $299K.

That means that there are at least if not more than 20,000 sole proprietorships ( small businesses) in California that will see their taxes raised during the worst economic crisis at least since the late 70'searly 80's.

That is just California. In the U.S. in 2006, there were approximately 22.1 million individual income tax returns that reported nonfarm sole proprietorship status. See IRS data here.  According another  IRS  table there were 1.6 million Farm Sole Proprietorship or Schedule F filers in 2008.

Even if a very small percentage of these earn >$250K per year, we are still talking about 1000's of small businesses and farms across the country that will be subject to higher taxes as a result of the proposed tax increases for those earning over $250K/year.

This isn't legal or accoounting advice by any means,and none of my posts should ever be construed that way. They are just theoretical pontifications. But it does imply we should take a second look at the policies coming down the pipeline.

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COMMENTS (6 Comments)

Businesses fail because there poorly run, not because of tax policy. The game is understanding the tax policy and using it to your advantage.
10:02 PM Mar 11th
Too soon to tell about buyers remorse in my opinion. Most of what is going on is trying to stabilize the economy. We can all agree that we can only hope Obama succeeds, because if he does, we all benefit.
11:25 AM Mar 11th

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