Want a Job??

Posted: February 22nd, 2011 by Militant Libertarian

by Tony DeMaio, Texas Ring

I’ve been considering starting a business. Retirement is getting a bit boring, and I have several ideas that I think could make some money. I’ve thrown them out to folks and many people seem to think they are good ideas–though they do not appear to want to pursue them themselves.

I believe that I could take $100,000, start a business and make $200,000 the first year. It would take a bit of work and I would have to hire someone, but you know, for $100,000 profit, it just might be worth it.

So, I sat down and did some figgering.

First of all, I would have to get $100,000 somewhere. Well, I have a friend that works for the Small Business Administration, so I should be able to raise that. I think I could pay it back from the first year’s profits.

Now, I’ll have to incorporate–figure between the lawyer, fees, etc. about $5,000. Then I’d have to hire a gal Friday at about $40,000, and an accountant for about two hours/week or $10,000/yr. Now, office space for about $10,000/yr should be about right, along with $5,000 for errors and omission, liability, and other insurance. Office furnishings and utilities should cost about $10,000.

So, I end up with start-up expenses of about $80,000. Interest on the loan at 6% and loan fees of $4,000 will bring it to $90,000.

Whew, that’s a bit more than I expected. Ninety grand before I even open the doors. O.K., let’s roll!!

The first year, I figure I’ll make $200,000. Well, first of all, I get to take $110,000 and pay back the initial loan plus interest. That will leave me $100,000. (There will be $10,000 “left over” from the initial loan.) However I shall also incur expenses of 5% payroll taxes on my employee ($2,000), health insurance costs ($10,000), and Social Security/Medicare on my employee (10%, $4,000).

If I pay myself a salary of $50,000, I will also incur payroll taxes on myself of 5% ($2,500) and Social Security/Medicare of 10% ($5,000). Thus my “profit” will be reduced by $73,500, or from $100,000 to $26,500.

On my salary of $50,000/yr, I’ll pay 10% personal Social Security/Medicare ($5,000), 25% federal income taxes ($12,500), and 10% state income taxes ($5,000), which totals an additional $22,500 in personal taxes. .

So, apparently, I’ll end up with $50,000 salary less taxes of $22,500 to clear $27,500; plus the profit of $26,500 for a total of $54,000. Actually, not too bad.

Wait a minnit!! I forgot the federal corporate tax of 35% on the $26,750 (or $9,500), and the state corporate tax rate of 8.84% (or $2,500). I’ve got to decrement that $27,750 by $9,500 (federal) plus $2,500 (state) or $12,000. Apparently, I’ll end up with about $14,500 profit. Furthermore, my accountant tells me that if I pass that $14,500 down to myself as “dividends”, I’ll only have to pay 15% taxes on it, or $2,200. Consequently, I’ll see $27,500 of my salary plus $12,300 or $39,800.

Now, Uncle Sam, let me see if I unnerstan dis:

I’m going to borrow $100,000 to start a business and hire someone. I’m going to take a risk that the business goes broke. I’m going to (partially) employ a lawyer and an accountant, buy insurance, and occupy a vacant office. I’m going to work hard for a year and make the princely sum of about $200,000, of which I‘ll see about $39,800.

In order to make this $39,800, I’m going to pay the following taxes:

Employee Social Security/Medicare $4,000
Personal Social Security/Medicare $10,000
Personal Federal Income tax $12,500
Dividend Tax $2,200
Personal State Income tax $5,000
Employee payroll taxes $2,000
Personal payroll taxes $2,500
Federal Corporate taxes $9,500
State Corporate taxes $2,500
Various Utility taxes and filing fees
(Taxes based upon federal and California rates.)

Total $50,200

Of course, my employee will also pay taxes of 10% Social Security/Medicare ($4,000), 25% income tax ($10,000), and 10% State Income Tax ($4,000). That is in addition to the 35% federal/state income tax ($5,000) the lawyer and accountant will pay. (total is $23,000)

I ain’t too smart, but I ain’t THAT dumb, either. What’s wrong with this picture??

What’s obviously “wrong” is that I don’t have to pay off the loan at the end of one year. I’m sure the second year will be better. Now, in the SECOND year, my expenses will be:

Employee $44,000 (10% raise); medical $11,000; (10% increase–I assume only 10% as I think Obamacare will be repealed); accountant $10,000; rent $10,000; lawyer $5,000 (contracts, legal problems); utilities $3,000; insurance $5,000; my salary $50,000; for a total of $138,000, which leaves a “profit” of $62,000.

However, I have to pay Employee Social Security ($4,400), half my Social Security/medicare ($5,000), payroll taxes for me ($2,500) and my employee ($2,200), for a total of $14,000, leaving about $48,000.

Again, on my $50,000 salary, I must personally pay Social Security/Medicare ($5,000), federal income tax ($12,500), state income tax ($5,000) for a total of $22,500 in taxes, so I’ll clear about $27,500.

I again have to decrement the profit by the 35% federal corporate tax on the $48,000 ($16,800) and the 8% state corporate tax ($4,200) reducing my profit to $27,000. Of course, when I pass that $27,000 down to myself as dividends, I will pay an additional 15% or $4,000 making it $23,000.

Consequently, I end up with $27,500 salary plus $23,000 profit, for a total of $50,500 on a gross of $200,000. I will pay taxes of:

Employee Social Security/Medicare $4,400
Personal Social Security/Medicare $10,000
Personal Federal Income tax $12,500
Dividend Tax $4,000
Personal State Income tax $5,000
Employee payroll taxes $2,200
Personal payroll taxes $2,500
Federal Corporate taxes $17,000
State Corporate taxes $4,000
Various Utility taxes and filing fees

Total $61,600

Again, my employee will pay about $4,400 in social security/medicare and about 15,400 in federal/state income taxes. My accountant and lawyer will again pay about $5,000 in income taxes. (total is $24,800)

There is STILL something “wrong” with this picture. I think I know why and how my rich uncle (Sam) got wealthy.

I’m very sorry, but I’ve got to retract that job offer. I don’t think I’ll open that business after all.

I wonder why the economy ain’t recovering.

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Comments (3)

 

  1. […] This post was mentioned on Twitter by Lew Rockwell, Aaron Turpen. Aaron Turpen said: New post: Want a Job?? (http://militantlibertarian.org/?p=15290) http://militantlibertarian.org/?p=15290 […]

  2. Tony De Maio says:

    Taxation may be theft; but what is going on in this country is highway robbery, extortion, bribery, and a confidence game.

    always,
    tony

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