What if I am a Small Business owner — How will Obama’s tax plan affect me?
Nearly all of America’s small businesses owners will see tax cuts or other preferential tax policies under Barack Obama’s tax plan.
First, because the Obama plan preserves existing tax rates for families making less than $250,000 a year, the vast majority of small business owners that report business income on their individual returns (whether through a sole proprietorship, partnership, or S-corp) won’t see any tax increase under Obama. The independent Tax Policy Center has estimated that only 1.3% taxpayers reporting small business income — or 663,608 taxpayers — would potentially receive a tax increase. However, even this overstates the number of “small businesses” that would face higher taxes under the Obama plan, because many of these taxpayers earn only a small fraction of their income from a small business. For example, Dick Cheney and John McCain would both be small business owners under this definition. Looking at just the tax filers whose sole proprietorship income is more than half of their total income, only 140,000 per year would be subject to Obama's rollback of the Bush tax cuts—a mere .6% of those tax filers with small business income.
In addition, Barack Obama has put forth several tax policies that are not included in the calculator but would greatly help you as a small business owner. Obama will:
Give all small businesses a $3,000 new jobs tax credit for each additional employee hired in 2009 and 2010.
Help small businesses raise capital and increase growth by exempting all investments in small and start up businesses from capital gains taxes.
Offer all small business owners a healthcare tax credit equal to 50% of the premiums paid for employee health benefits each year.
Additionally, Obama would help all small businesses access capital through expanding the Small Business Administration’s direct loan and loan guarantee programs and he would create a new national network of public-private business incubators to facilitate the work of entrepreneurs in creating start-up companies. For details on Obama’s small business plan, see HERE.
Do Small Businesses pay taxes on their gross revenues or their net income?
As a small business owner who claims small business income on your individual tax return (whether through a sole proprietorship, partnership, or S-corp) you pay individual income taxes only on your net income — or profit — and not on your firm’s gross revenue. Accordingly, when Obama says that he would roll back the Bush tax cuts for all couples earning more than $250,000 a year, these income figures include only net income that a small business owner takes home. Because net income is usually far lower than gross revenue, even if your revenue is above $250,000 you are still likely to get a tax cut under Obama’s tax plan. If you are a small business owner using the tax calculator, you should select your income level based on the net income you claim — your revenues minus your costs — to see how you would fare under each candidate.