Dugan & Lopatka Blog

• Most small business owners are organized as proprietorships, partnerships, LLCs or “S Corporations”.
• That means the business income is taxed on the owners’ personal returns at the individual tax rates.
• According to the IRS, about two thirds of all U.S. corporations operate as S corporations (http://www.irs.gov/newsroom/article/0,,id=212389,00.html).
• The number of partnerships and LLCs increased to more than 3 million in 2007, according to the IRS Fall 2009 Statistics of Income Bulletin (http://www.irs.gov/newsroom/article/0,,id=215809,00.html).
• The June national unemployment rate stands at 9.5% according to the Bureau of Labor Statistics (http://www.bls.gov/news.release/empsit.nr0.htm).
• Small business has generated 64% of net new jobs over the past 15 years according to the SBA (http://web.sba.gov/faqs/faqIndexAll.cfm?areaid=24).
• Raising individual income taxes on small business leaves small firms with less money to hire new employees.
• So now’s not the time to raise taxes on small business.
• Please reread the above and connect the dots.

P.S.  To find out what the current income tax rates are on small business, check out the inside page of our Handy Tax Guide at

http://www.duganlopatka.com/images/PDF/handytax2010.pdf

Today’s Quiz:

Q1.  Do you have “household income” over $250,000?

Q2.  If yes, do you feel “wealthy”?

If you answered “yes” to the first question, but “no” to the second, you may be a small business owner.

Congress continues the debate to raise taxes next year on the “wealthy”. Their definition of wealthy seems to be families with “household income” over $250,000.

And that could be a jobs killer.  

A 2009 report from the U.S. Small Business Administration tells us that small firms represent 99.7% of all employer firms, employ over 50% of all private sector employees and have generated 64% of net new jobs over the past 15 years.

Where are we going with this?

Most small business owners are organized as proprietorships, partnerships, LLCs or “S Corporations”. That means the business income is taxed on the owners’ personal returns at the individual tax rates.

So that “household income” over $250,000 may actually be from a small business.

Raising taxes leaves less for small business to invest, whether it’s investment in new equipment, new technologies or new hires.

So why raise taxes on small business with unemployment near 10%?

Our PSA to Congress tomorrow.

Yesterday President Obama signed into law the 2,000 page financial reform bill. In March the President signed the 2,300 page health care bill.

Both bills leave most of the details to others to figure out: the “regulators”.

Generally when tax bills are passed the Treasury Department issues regulations to interpret and administer the newly passed legislation.

The regulations come out first in proposed form. Then there’s a “public comment” period, before the rules are adopted as final.

Sometimes there are revisions to the proposed rules, and then a second set of proposed regulations come out.

That happened back in 1989 when the Treasury Department offered us this:

“If paragraph (f)(4)(iii)(A) of this section applies to a supplier undertaking, the supplier undertaking shall be treated as similar to undertakings that are similar to the recipient undertaking and shall not otherwise be treated as similar to undertakings to which the supplier undertaking would be similar without regard to paragraph (f)(4)(iii) of this section.”   -Treasury Regulation 1.469-4T(f)(4)(iii)(C)(2)

Ouch.

Most of us had real problems with the ’89 regulations, and the government eventually replaced them.

We’ll all be watching closely as the avalanche of proposed regulations start coming out. And no doubt some will go through multiple rewrites, just like back in ‘89. 

You can follow along too. Just check the Federal Register, where the rules are first published:  http://www.gpoaccess.gov/fr/ .

Peter Orszag is the current director of the Office of Management and Budget (OMB).

His blog for today notes that time is running out on the second annual SAVE award contest (http://www.whitehouse.gov/omb/blog/10/07/21/Time-is-Running-out-to-SAVE/).

I had never heard of the SAVE award contest before. Turns out it’s an annual contest where people can summit suggestions on how to cut waste and improve government performance.

The contest ends tomorrow so time’s running short on summiting your ideas.

Problem is, though, the contest is limited to suggestions from government workers. The rest of us are ineligible to compete.

So if you’re a government employee, get those submissions in by tomorrow at http://www.whitehouse.gov/save-award .

If you’re not a government employee and have a good suggestion, well, I’m not sure what you do.

I just tried to register and summit a couple of my ideas, but couldn’t.

I don’t have a recognized “organization issued email address”.

Forget about the contest.

But make sure you submit your ideas and suggestions to your elected officials. You can find yours at http://www.usa.gov/Contact/Elected.shtml .

I think they need our help.

Last week the U.S. Chamber of Commerce held its America’s Small Business Summit in Washington D.C. The conference also included a Jobs Summit, as part of the Chamber’s American Free Enterprise Dream Big campaign.

The Summit brings together small business owners, association executives, and state and local chamber executives from across the country.

This year’s speakers included Bob Love, the former Chicago Bulls great and NBA All-Star. Love’s retired jersey hangs from the rafters at the United Center, along with those of Michael Jordan, Scottie Pippen and Jerry Sloan.

Love suffered from a severe stuttering problem from childhood, and after his basketball career ended he wound up working as a busboy making $4.45 an hour to support his family.

Thanks to speech therapy classes, today Love is the Director of Community Affairs for the Bulls, regularly speaks to school children, and is a motivational speaker and author.

I didn’t hear Love’s speech at the Summit. But I suspect he talked about perseverance, a positive attitude, and following your dreams. 

See Love talks about following his dreams in his documentary, aptly named “Find Yourself A Dream”.

And that brings us back to the Summit: Dream Big.

Last week the Chamber sent an open letter to the President and the Congress on how to put Americans back to work.

You can find it at  http://www.freeenterprise.com/2010/07/u-s-chamber-of-commerce-u-s-chamber%e2%80%99s-open-letter-to-president-and-congress-offers-plan-to-put-america-back-to-work/

And you can learn more about the Dream Big campaign at http://www.freeenterprise.com/about/

Last week the Congressional Budget Office (CBO) released a new report on the long term budget outlook for the federal government.

The CBO forecast the budget under two scenarios, based on different assumptions for future government policies on tax revenue and spending.

The report shouldn’t surprise anyone who follows what’s going on inside the Beltway. Congress needs to increase taxes “substantially”, decrease spending “significantly” or adopt some combination of the two if lawmakers “are to put the nation on a sustainable budgetary path”.

You can find both the full and summary reports and the Director’s Blog at http://cbo.gov/doc.cfm?index=11579

LeBron James delivers his Address to the Nation tonight on ESPN. Many sports commentators are now saying it’s a toss up between Cleveland and Miami.

Of course, we’d love to see LeBron come to the Chicago Bulls, and join Derrick Rose, Joakim Noah and newly signed Carlos Boozer.

Last night a Chicago T V station reported that LeBron had changed his “tax address” to Illinois according to unnamed sources.

I hope that’s true, but I doubt it. He might pick the Bulls, but it’s unlikely he’d declare his state of residency before he makes his announcement tonight.

Many people change their state of residency for tax purposes. And Florida is a popular choice since the state doesn’t have a personal income tax.

Illinois has a flat 3% personal income tax rate, although Governor Quinn would like to raise it to 4%.

Ohio has graduated rates that top out at 6.24% this year and 5.925% next year.

If LeBron listens to his tax advisors he’ll head south to the Miami Heat and join DeWyane Wade and Chris Bosh.

But there are a lot more business opportunities for LeBron if he comes to Chicago. And those Jordanesque opportunities would likely outweigh the Illinois tax hit.

Of course, LeBron is from Akron so he may stay put in Cleveland. The Cavs can also offer LeBron the biggest contract under NBA rules. But, he’s got those high Ohio tax rates to consider.

We’ll find out tonight.