Thursday, April 15, 2010


Death and taxes- the two sure things in the USA....well for some.
I am griping today.
I am tired of paying for small business breaks. Parts of houses, autos with signs on them, "conventions", write offs of computers and every office supply possible, breaks for hiring more people-but charging the client more, complaints about public systems that use their services.
In general, I am tired of it.
Flat tax I say.
When I pay more taxes than a friend who owns a business and only earns "$20,000 a year" but belongs to every major club,has ball park tickets for the family, has every new surgery and drives a large "truck" with an advertising sign....FLAT TAX!
No more writing off home loans, business debt, bad debt or tuition as charity.
Flat tax.
And to the person who was sad that they could have spent their inherited money differently- go to an accountant for your own estate. There are ways around everything if you plan and there is not a FLAT TAX!


RAnn said...

Flat tax as in you take the same percent of everyone's income, or flat tax like you tax everyone the same number of $$?

With business owners, the "problem" is deciding what is income. It costs money to run a business. If I have a widget making business, I have to buy raw materials, hire people, support the building we are in, convince you to buy widgets, and get the widgets to market. How would you decide what is a business expense? Would you just say that I got $200,000 for selling widgets this year, tax me on that--even if it cost me $180,000 to make them?

If you loan me money, and charge me interest (making it an investment for you, not charity or a favor)and then I don't pay you back, do you think it is fair for you to have to pay taxes on the money you earn when the other folks you have loaned money to pay you interest, yet you don't get a break when I don't?

Janette said...

You make good points.
Here are some of my own.
"Truck deal" was put into law to help farmers. The small business owners globbed on and get their truck virtually free - opps- you and I pay for them. Same with company cars- what a joke that is.

Let's get into gas. If I drive to work, I pay the gas. When I drove to an appointment it became a business expense all deductible.

How about clothes? Got on a cute shirt with a company logo- write it off. A teacher cannot write off her cute tee- it is not a business expense.

I learned a number of years ago that in a particular year my parents ( successful business owners at the time) paid less income tax than I did. When the claim came that they paid "other taxes" I found that all those were also deductible.

If you put forth the money to build the widgets- you have the costs of those items. The costs of the items would be the base- what you make as profit is your income. Yes, you have to pay store costs and advertising- but you make money off of the widgets. You should pay the taxes.

Second point. If I never paid you back, I will not have gained interest on the money, so I will not have taxes to pay on the investment.

Do I think the US can function this way? Probably not. I have a right to complain when I know people are totally "getting over" and I am paying what is owed because I don't pay the game of borrowing and owing money.

I guess I have to go into business. I need a new truck to haul the boat that I can take clients on!

Elena said...

Although I do have a financial planner that I am working with, I highly doubt that is going to remove the regret I feel at having such a huge sum of money paid out in taxes instead of for the things on my lark list.

I do support tax reform. I do not support the reforms of the current regime, which incidentally, are only going to get worse.

Janette said...

Elena, I pay a huge amount of tax every year. I will never feel good that the amount I pay is less than most of the people I know in small business.
I am glad you are working with a financial advisor- it is important to learn how to handle sums of money as they come in. I have been learning for years. Still, I resent the idea that I have to be in debt to "cut a deal" with the government. I just won't do it!
I think that the privatization of the government under Dick Chaney and Donald Rumsfield is going to be felt for years to come. That is where the bankrutcy of the government comes from. We currently pay about twice the price for "hired guns and their translators" than the army provides. Obama recognizes this and is beginning to reign it in.
Unfortunately, things like the land that the government leased for 99 years to private industry on bases to build and then rent back has all been signed and delivered. The story is much more than a "Black man(or is he really black- or even American) who, at one time, voted for abortion". the story is that the wool has been pulled over the general public's eyes for many MANY years and the pay back is going to be hell.
I have always wondered how voting for an anti Catholic who happens to be cute and dislikes abortion is better than someone who actually has the guts to take on Wall street and the civilianized defense industry....
Look around- there is far more than what the minority right wing publishes out there. I happen to have voted for one man that I thought would take on the mob. Never have been a Democrat. I guess someday you might learn that you can vote for a person without voting with a party. (Although I would much prefer my money being spent on healthcare than the Middle East- any day of the week).

Elena said...

If you can put the kool aid down for a bit Janette, you might be interested in this financial visual aid.

Janette said...

I love kool aide!
Elena, I love the letters to your mom. I wondered why you disliked your grandmother so much- she seems like she did an awful lot for you and your mom...with little response in return. Her letters are so full of longing for your mother to just say thank you. They actually make me call my mom more often to say thank you.
PS-I don't comment on your blog- it is very difficult to negotiate and takes over three minutes to load. You must have very high speed internet- I can't get past the eggs and highlight the text to read it.

RAnn said...

Let's say I have $5,000 I want to invest. I loan $1000 each to A, B,C,D, and E. The terms are simple, a one year loan at 10% interest. A year later, A,B,C,and D repay the loans, with interest, giving me income of $400. However, E doesn't repay the loan, and files bankruptcy, so I know I'm never getting paid. Now, do I have $400 income for the year, or a $600 loss? Should I pay taxes on the $400, or should I be able to deduct the $600 from my income, since I have $600 less than I would if I had just put the money under the mattress.

RAnn said...

Regarding my widgets, are you saying the cost is the cost of the raw materials only, or are you allowing me to factor in the building rent, employee salaries and benefits, advertising, transportation and government fees? Yes, I'm trying to make a profit selling them, but the owner is the last one paid, not the first.

Janette said...

The loan- you take your chances. Why should the government pay you back your loan? I say- take your loses. Maybe less people would be in debt because fewer people would be borrowing.
What you have to understand is that I realize that a flat tax will never fly because our society is based on borrowing money.

Janette said...

As for the widgets- I have no problem with writing off the true cost of the widgets- employees and all. What I object to is the outrageous amounts that are considered advertising.
The truck thing is crazy as are many of the other perks. Yes, the owner is paid last- that is why they can afford the lavish lifestyle that the company in cures hiring them. I have a friend who got the earned income credit this year because her small business did not pay her enough. Of course- the house, cars and lifestyle continue- on a higher level than mine to be sure.
I know lots of small business owners Ruth. Most of my friends and family are in small business. The truth is I think if they get those types of write offs- so should I. I'd love to drive a company car to work, get my gas paid for and join the athletic club all for the sake of advertising that I am a public school teacher....
Flat tax is the other end of the extreme. To me- in my case- it is much more fair.

RAnn said...

The government isn't paying back the loan--they are just accepting that in business (and if I'm loaning money out like that,it is a business)there are costs to doing business. In the loan business, one of those costs is loans that aren't repaid. In the olive salad business, one of the costs is that the company to which you delivered, with the understanding they'd pay in 10 days, goes out of business without paying you. In the medical business you bill $1,000 but only collect $500--do you pay taxes on the $1000, or the $500? When a bill goes out, the number shows up on your accounts receivable as an asset; at some point you accept that you won't get paid and deduct it. That deduction reduces your taxable income. Any business that has accounts receivable (which is probably just about everyone except a few retailers)is in essence loaning money. No being able to deduct bad debt as a business expense is absurd.

You seem to have issues with the number and types of things business owners are able to deduct as expenses. I'm in no way qualified to say whether a particular expense for a particular business owner is really advancing his/her business, or is really more personal. I'm sure there are some who push the envelope and have a business paying for what is in essence a personal expense. That's what keeps IRS auditors busy.

As far as deducting work clothes, why don't you get your co-workers together and request that the school system mandate uniforms for teachers? Then you could buy your logoed shirts and slacks and deduct them.

Janette said...
This comment has been removed by the author.
Janette said...

Neither case did the person receive the money-so there is no income. You would not be charged on income you did not receive.
In turn, if you made a gamble and lost - as in the delivery- then stand in line with everyone else who lost. Why should I pay for your lose? Your lose is the amount for the product. You extended credit- go to court to get your money back- dime on the dollar. Neither you nor the person you "lent" to should be reimbursed by the federal government (which is what a write off is Ruth).
The current way of doing business is relatively new. It takes responsibility from the owners and places, at least some, on the federal government. People no longer know who holds their accounts. Sound familiar? That would be what just happened with banking. Where did Bush have to borrow to pay back the creditors---CHINA and Saudi Arabia. Neither country permits their people to leverage capital the way ours does- and now we owe them. Don't you think that will come back and bite us in the butt. Having lived in both countries- I assure you they love holding all of the cards.
Medical care is entirely different- since they notoriously overcharge so they can write off their losses. I was hoping the health care bill would go further into this-but it was stopped cold by the Republicans. (Health care costs do not affect me or my children since we all have socialized medicine through the Army/Marines).
As far as the uniform goes- I don't like the game and attempt to stay out of it. Just like I do not hold a mortgage- even if the federal government will pay more than half of it. I can see that it would be an obvious place for someone to think IF they thought the current system worked well.
If you think what I am saying is that I don't like it because I don't get the breaks- you would be wrong. As in most of my disagreements with the government- I don't like it because I cannot see how it can be good for the country and its people in the long run.

Back to flat tax for me:>)

RAnn said...

In turn, if you made a gamble and lost - as in the delivery- then stand in line with everyone else who lost. Why should I pay for your lose? Your lose is the amount for the product. You extended credit- go to court to get your money back- dime on the dollar. Neither you nor the person you "lent" to should be reimbursed by the federal government (which is what a write off is Ruth).

No, it's not. A write-off simply deducts expenses from income, for tax purposes. I delivered $100,000 worth of widgets last year--but in order to make those widgets I spent $20,000 on labor, $10,000 on raw materials, $50,000 in rent and utilities, and $1,000 of them were delivered to Joe, who never paid, or sent them back. My income therefore is $19,000; that's what I'm taxed on. The government isn't paying me for that $1,000 worth Joe didn't; it simply recognized the reality that I didn't get paid that $1,000.

I actually agree with you about some business owners exploiting the system, listing things as business expenses that really aren't; however if losses are counted as income the results could be absurd. I open a do-dad store, I take $100,000 out of my savings to open and stock it. I pay $10,000 for my initial inventory and in a month, I sell it for $12,000. Sounds good,except that my rent and utilities are $3,000/month. I decide to give it another month, and buy $12,000 in do-dads and sell them for $15,000. Things are getting better, so I turn that $15,000 into more inventory, but Christmas is now over, and Mardi Gras stuff just doesn't sell in Peoria. I have to mark that stuff down, and only get $15,000 for it. Now, I've been in business for three months and my do-dad investment grew from $10,000 to $15,000--but I'm shutting down the business because it is not making money. By the time I liquidate everything, my original $100,000 is down to $70,000. Are you saying I should pay income taxes on the $5,000 "profit" on the do-dads?

Elena said...

"Why should I pay for your lose?"

You're not. She is simply able to deduct the loss as the cost of doing business. It's about her keeping more of her own money. It has nothing to do with anyone else.

Janette said...

The difference is in US that you do not take out the $100,000 from YOUR pocket. You sell that idea to a bank and when it goes under you are bankrupt and the community pays for your mistakes as you walk away.
If your widgets are for the x model combine and the community uses the y model combine- why should the community bail you out when your business goes under.
Our country has learned to live on credit. This used to be done exclusively with stock- until the federal government got involved in income tax. The system is flawed.

We simply have to start over again.
I don't know who filled out your taxes- but I am betting it was probably an accountant of some sort (Turbo Tax is an accountant of sorts) because the common middle class does not understand the tax code. I promise you that the upper class hires people who really understand the tax code - leaving Warren Buffet paying less personal income tax than his secretary. (His admission).
Take it back to square one- Flat tax:>)
I hate the idea that the entire way in the US has become - how can I not pay taxes. It is sort of like the kid in my class who was changing answers on the test- sure the test is now correct- but what did he do to get there?

Elena said...

Well I can't say that I disagree with your last comment. It use to be that when you went to the bank, hat in hand, to borrow money they considered your credit-worthiness and once they were assured you could pay back the loan, you usually got it.

Laws such as Community Reinvestment Act, caused and even forced banks and financial institutions to make loans to people who were not credit worthy. That's what caused the bubble that finally burst and lead to this recession and yes, that's what we are all paying for, (made much worse by the so called stimulus but that's another story.)

But that's not the scenario Ruth or I were even referring to. (In her scenario, Ruth even said she had $5000 to invest - nothing about borrowing). Every business is bound to be hit by some bad debts - losses that cannot be re-couped. Ruth referred to widgets. In my husband's business it could be customers that can't or won't pay for their repairs, instruments that get lost or damaged etc. Those are the routine costs of doing business that businesses SHOULD be able to write off because there was no profit involved - in fact there was a loss.

I'm totally for tax reform. I liked some of what Mitt Romney said in the past.

Janette said...

The heart strings that Ruth pulls are what small business pulls out of the hat every time reform begins. I am tired of it. Start from scratch. I can see working on regular bad debt- but the idea that everything from car to gas to lunch can be discharged as a business expense is crazy. Then when the business goes belly up- the people walk away from their debt because they owe "the bank" and forget entirely- the bank is US. That is what I disagree with.

Janette said...

I liked Mitt- too bad some people could not get past his religion.

Elena said...

Out of curiosity Janette, have you ever run a small business?

Janette said...

Fair question. The answer is no. I was brought up by a small business owner. All of my siblings own small businesses. Most of my closest friends from school have small businesses.
I know lots about them- and have thought about opening one myself. I could not get past the idea that if it failed I would have to leave people in the dust. Just cannot get there. Probably will sell my husband's woodwork in the near future- and for that I will get to write off a truck:>)