How are businesses taxed twice?

Here in Idaho they have/had a law, one I never paid attention to.
Mechanics pay sales taxes when they buy their tools. Then they pay income taxes when they use their tools in their jobs. Then the state taxes them for having the tools. Something like that, I betcha.

The business pays taxes as the business. Then the owner pays taxes on the income received from the company.

This is a spurious argument, because there are government services that benefit the business. These are separate from government services that benefit the individual.

Self employed business entities pay business tax and 18% extra for self employment tax. The extra 18% is to cover social security. Self employed business entities can apply for S-Corp status and avoid the extra 18%. S-Corp status costs about $350 to apply. Apply now and the IRS might still accept for 2016. Business owner must name an official beneficiary.

You must set up two different bank accounts. One for business, and the other for personal. The business must pay a salary to the personal account. You must set up a payroll.

Then you have income tax on the individual to the IRS.

Then you have sales tax for the business with the state.

Then you have income tax with the state, if the state collects it.

This is how I do it.

@kritiper In New Zealand and in Norway, businesses register for sales tax, which means that things bought with sale tax content are deductible from the sales made with sales tax included. It makes the sales tax business pay effectively nil and the businesses only pay the difference (if they are profitable with their sales tax collected being larger than the sales tax they pay.) In New Zealand, businesses were allowed to register for sales tax immediately, making their start up costs effectively resulting in a refund the first couple of quarters, usually. Small businesses usually counted on this refund to help with their cash flow as the sales tax from vehicles and large pieces of equipment were deductible.

I’m sure the American States have that set up as well, seeing as how sales tax is payable only to the State the business is register in, right?

Examples of double taxes: import tax, excise tax, capital gains tax, fringe benefit tax. I’m sure there are a few others, but I’ve been out of the game for a while.

@RealEyesRealizeRealLies

Note: I am not arguing here, just stating how I see it, please straighten me out where I might be wrong.

Everyone pays tax on income, so I don’t count that.

Sales tax is passed onto the customer, so I wouldn’t count that either.

I didn’t know about the S-Corp loophole, I’ll look into it.

True, the owner pays double SS tax and also pays half of their employees SS tax. Plus, taxes on employees levied by the state if that applies. I think regarding the employees that’s considered as part of the entire payroll cost. I wasn’t thinking of that as a double tax, but a payroll tax.

@cazzie Why is capital gains a double tax? It’s in lieu of regular income tax.

Because when you bought the item you paid tax on it. The increase in value does not reflect an actual income benefit in regards to the sale of a family home or commercial property because you have to buy back into a market with the same increased cost. It wouldn’t apply to all capital gains, but it does sting some businesses.

If you are buying property to flip them then do you have to pay capital gains and business income tax?

As a business owner I cannot offer up anything specific as evidence of double taxation other than “fees” that are essentially taxes disguised as “fees” like the Obama Care re-insurance fee I pay for my employees. That $400.00 per month frost my cookies like no other Federal smoke screen I have to pay.

I’m not a big fan of capital gains on private family homes. We also pay asset tax here in Norway. Our net worth is calculated and if we fall in the black there is tax calculated. There is also crazy inheritace tax so they have people scrambled hete setting up family trusts. Something I did in new Zealand for clients.

@cazzie Regarding property, there is no capital gains tax on the gain up to $250k single person and $500k married couple on a primary residence held 2 years or more. Basically, that means if you live in your home 2 years or more you pay no tax when you sell it. The average property doesn’t go up over $250k from buying it to selling it.

For investment property, you pay regular income tax on the gain if the property is held less than a year. However, deductions can be taken for expenses incurred to hold or fix up the property. If the property is held over a year you pay a lower capital gains tax and since it was an investment you can “depreciate” the property, which saves money.

@ cruiser is the ACA fee on top of the health care insurance you pay for your employees?

@Cruiser I meant to address your comment too, I’m glad @cazzie asked something about it. I think that ACA fee is for companies that have a certain amount of employees, isn’t it? I don’t like that fee at all either. As you know, I don’t like anything with healthcare being one through the employer. I don’t think I’m obligated to pay a fee due to Obamacare with the business we bought?? I might be wrong. We only have 5 employees including paying my husband and myself (the owners).

@Cruiser So of all the fees that you have to pay, the one that irks you the most is the one that goes to help other people? Spoken like a true Trump supporter.

@cazzie Yes it is. @Irukandji I am going to go out on a limb and assume you do not have to pay the full boat of health care costs so why would you be the least concerned about the overall cost to the person paying the monthly bill…Yeah, sounds like you.

@Irukandji The social security tax also helps the employees. I don’t understand the employer paying that tax. Why shouldn’t the employee pay into that 100%? Wouldn’t it be much less convoluted if the employer just paid the salary, and the employee themselves paid all the taxes and other benefits? Problem is, if the employee has an option, like with health insurance, they might just risk it and not pay for any.

@Cruiser You assume wrong. Nice try, though. And just more proof that conservatives would prefer to lamely reflect the words of others as if that were meaningful rather than come up with original ideas and criticisms.

@JLeslie Whether it is the employee or the employer paying 100%, 50%, or 0% of the Social Security tax is nothing more than a question of accounting notation. The only difference is how the paper gets pushed around before the numbers change.

@Irukandji I semi agree with you. I find it ridiculous we have to do this dance though. Regarding healthcare, since there is no social system tax for socialized medicine (now we have a small penalty) if we leave it up to the employee, a lot of people will just not pay. Also, a lot of employees are clueless how much their employer does pay in for them. I think that’s bad. It’s bad when the employee suddenly find themselves having to pay Cobra, and it’s bad that the employee might have resentment about their “low” wage, but doesn’t understand everything the employee is accounting for. It also gives the employee fewer options to control their own money.

If I’m self employed I have to pay more social security. I’m self employed, so I charge more for “freelance” work. The person I do a lot of work for now has no employees, all freelancers.

@Irukandji Then if you yourself do pay the monthly ACA bill how can you not notice nor take exception to the 3% reinsurance fee. Am I to assume your pockets are deep enough where you enjoy bending over and grabbing your ankles and say thank you may I have another?

It would cost much more to impliment if each employee paid. By putting the onus on the employer to pay ON BEHALF of the employee it saves government money. Isn’t that a good thing?

One of our big discussions when NZ would make changes is ’ what is the cost of compliance ’. We stuck up for our small businesses and argued all the time that if they put petty stupid fees on things it was going to cost our clients more to just comply than the cost of the fee because they were paying us to do the work. We had to justify our fees to our clients and charging them 150 NZD a month to pay a tax of 50 NZD was ridiculous. This is why fewer/single payer systems are better.

@Cruiser The reinsurance fee is a temporary tax (it ends this year) used to stabilize premiums during the transition from pre-ACA to full implementation. It lowers the overall cost for all parties, and there is even a measure that requires the government to pay back any excess collected. Why would that upset me?

@Irukandji I cannot answer that…but my guess would be you must get enjoyment out of paying taxes fees no matter how transitory they may be.

It is very standard to have the employer collect employee fees and costs on behalf of the government. You can look at it as part of their salary or you can look at it as the cost of having employees. 6 of one. Half dozen of another.

@cazzie Good point about the costs. But, think of this. In the US we are botching wages have not gone up in 15 years. But, actually, the payroll obligation has gone up for employers, because most are paying more in health care and other insurance for the employees. Some of it is passed onto the employees. I’m not defending the low wages, I’m just saying the transparency isn’t really there and it’s used for political gain.

I’m going back to the original question. The only double taxcation I’m aware of is the tax on dividends. If you are paying yourself dividends, the dividends are paid out of profit. They are taxed as profit on the business and then taxed again in your personal taxes. As for payroll taxes, you can pay yourself a salary and it works exactly like any other emplyee, the business pays half and you pay half. Sales taxes are quite simple. the end user pays the tax. If you are buying something for use in the business (Tools, Brooms, toilet paper) it should be taxed when you buy it. If it is for resale, it is not taxed when you buy it.

There are literally hundreds of Taxes and Fees you pay as a business. Many could be viewed as double taxation but they are all separate and distinct. For instance I pay fees for a hazardous waste license. Then I pay assessments for any hazardous waste generated. Of course I also pay for inspections to insure I’ve paid all the appropriate fees. And I pay sales taxes on government fees (that one still frosts my ass).

@Jaxk The dividends I’m unclear about. So, when you pay yourself a dividend, does that get social security tax taken out also?

if collected sales tax frosts your ass, you know less about taxation than I ever dared give you credit.

@JLeslie – No, there is no social security tax but the profits are taxed at the corp rate and then taxed again as normal income on your personal taxes. It works the same as when you own stock that pays a dividend.

@cazzie – I’m not sure if you read what I said or you simply don’t understand sales tax. For example, I pay about 55 cents a gallon in fees and taxes when I buy gas. That 55 cents per gallon is the taxed again in sales taxes. That is double taxation. Not for me since I merely collect the sales tax but for the end user.

@Cruiser Fees that save me more money than they cost me in the long run? Yeah, I enjoy those. And while no one loves paying taxes in and of itself, they’re the price we pay for civilization (which is another thing I enjoy).

@Jaxk is the corporate rate just a federal tax? Or, state also?

@Irukandji Again I have to assume you are not a business owner and that you do not directly pay this ACA reinsurance fee and can appreciate your zeal for not having to shell this money out….but I do….this “fee” costs me/my business over 4 grand a year….that is 4 grand I would so much rather give to my employees…but Barry and friends think they need it for other things….oh well.

@JLeslie – I pay a state corp tax every year. I’m not sure if that happens in all states but I do. I’ll give you one more that is a bit fuzzy whether it’s double taxation or not. I pay a tax on my inventory every year. All merchandise I have bought for resale but not yet sold. This inventory tax is why stores always try to lower their inventory between Christmas and New Years with massive sales.

@Jaxk I did mention in my first post about the excise taxes and fees, but if you are a business registered for sales tax returns, you deduct ANY sales tax you pay against the sales tax you collect, whether it be calculated on top of other fees like freight and postage, or road user taxes on petrol, or not. I am very well aware how sales tax works, in Norway and in New Zealand, though. Perhaps some US States don’t allow this provision, but that would be very odd. I’ve only ever worked with GST and VAT and that is the principal behind those systems.

@Jaxk That inventory tax is very good information for me to research. Is that tax just at the state level? Or, federal too?

@JLeslie – State.

@Cruiser It’s interesting how you feel free to assume things that I’ve told you are false. Are you really so incapable of understanding the fact that two people in the same position can disagree? Anyway, the fee costs you over four grand a year—but how much more would you be paying without the transitional program? Do you know? Do you care?

@Jaxk I just did a search and it looks like my state doesn’t have an inventory tax. Very few states do.

I think inventory taxes are incredibly unfair. I stopped doing income/expense returns for my business when I found out that Norway had that, too, after the first year and I saw what it did to my bottom line. I could have lied and given a really low value on my stock on hand and raw materials, but I pay a lot for essential oils and my bars of soap retail for 60NOK a piece. My income was so low from the business anyway, it just didn’t pay to do a return. Crafters, as long as they don’t have over a certain amount of income a year, don’t even have to file, so I stopped. It just made no sense to.

@Irukandji I am sure you could care less that health insurance for an employee with a family of 4 here at my company in 2011 cost me $1,500 per month or $18,000 per year. Thanks to Obama care that same employee with a family of 4 is costing me $2,351 per month or $28,212 per year. That’s $10,212 dollars MORE per year not including the resinsurance fee tax. If you asked me this 5 years ago I would have said there is no way it would cost this much more after the passage of the ACA especially when it was sold to me it would cost less not more.

Also I do have to apologize for misrepresenting my figure as I pulled my last invoice and the Health Insurer and Reinsurance fee is now up to $482.85 per month.

@Cruiser If it’s costing you more, one of two things has happened: you’re doing it wrong (a lot of people who have complaints about the ACA do not understand the breadth of options they have and join a bad program), or you live in a state that has refused to establish an exchange and won’t cooperate with the federal exchanges (in which case it’s your state government costing you all that extra money, not the ACA). I recommend getting in touch with someone who can help you navigate your options. That’s what I did, and it helped me save a lot of money that I didn’t realize I could avoid paying.

My problem @Irukandji is that everyone who works here was hired with a promised healthcare benefit as part of their compensation. I am merely illustrating from my experience how simply maintaining the same coverage and deductable that we have had for going on 10 years now with Blue Cross Blue Shield has cost me/this company despite the promises regaled to me by our President that we could keep our coverage and it would cost less on the exchanges. The only plan I saw that came close to the coverage we currently had would require a $10,000 deductible per covered family member to even simply cost the same as my policy did only a year ago to save the $800.00 premium increase. I have 3 hourly employees who are having babies and to saddle them with $10,000 per year per family member covered deductible is simply unconscionable to me.

Though next renewal I do plan on implementing and HSA and tiered plan to where employees can choose a lower cost plan and I would reimburse them part the cost basis difference.

@Cruiser It sounds like your State has cut off the noses of it’s workers just to spite the Democratic President.

@cazzie That is my belief for sure. I knew it was not going to go well when Nancy Pilosi said “Just pass the damn bill…we can read it later”.

@Cruiser Sounds like you live in either a Southern or a Midwestern state. It’s not the president who screwed you. It’s your governor. And by the way, Pelosi never said that. What she said was this:

“You’ve heard about the controversies within the bill, the process about the bill, one or the other. But I don’t know if you have heard that it is legislation for the future, not just about health care for America, but about a healthier America, where preventive care is not something that you have to pay a deductible for or out of pocket. Prevention, prevention, prevention—it’s about diet, not diabetes. It’s going to be very, very exciting. But we have to pass the bill so that you can find out what is in it, away from the fog of the controversy.”

Context is important here. Notice that she said ”we [meaning Congress] have to pass the bill so that you [meaning the American people] can find out what is in it.” And the “away from the fog of the controversy” clause is pretty important, too. The claim she was making wasn’t that it was impossible to know what was in the bill. It was that the people would come to appreciate it once they saw it in action (rather than just hearing all of the scaremongering against it). And guess what? She was right (look especially at exhibits 9, 10, and 11). People started to like it a lot after it was implemented.