Business Growth Strategies » Taxes

What Do My Tax Dollars Get Me? Government Incompetence, Of Course!

Ryan M. Healy — Fri, 10 Feb 2012 17:50:38 +0000

“Five thousand dollars goes fast when the government takes ten…”

I made a decent income in January, but it’s all gone already.

It’s not because I’m a big spender either. Rather, it’s because the government is.

Every year, between January 15 and January 31, my corporate taxes are due.

First I pay the federal government. That’s the biggest chunk of money. Usually between $10,000 and $20,000 depending on the year.

Second, I pay the state government. A smaller amount, for sure, but still painful. It comes to around $2,500 to $4,500 each year.

Last but not least, I pay the third government, which is the Colorado Department of Labor and Employment; or the unemployment office, for short.

If you’re an ordinary citizen, you probably don’t realize the unemployment office is a government unto itself. But since I’m the sole owner and employee of my own corporation, I know this all too well.

Believe it or not, I must file quarterly with the unemployment office or face fines and late fees — even if I owe them nothing. And while my unemployment tax is only about $200 a year, I pay much more in administration costs just to file their ridiculous paperwork.

And good luck if you ever have a question…

They once made a mistake and I had to call them to correct it. I was only able to succeed after repeated calls and messages. (Apparently, nobody could help me but the one woman assigned to my account. She never answered her phone and never returned messages. This is the government’s idea of customer service.)

You can expect a similar experience when you call the Colorado Department of Revenue.

This year they changed their zero file rules. You now have to get a special ID that you request online. I’ve requested my ID twice using their online process, but still they’ve sent nothing.

I finally called them because I’m unable to comply with their rules until they send me this number. I was greeted by the following message:

We are sorry, but we are unable to assist you at this time. Due to high call volume, we are restricting the number of callers placed on hold. When we do this, average wait times are reduced to approximately 15 minutes rather than 45 minutes to one hour if we accept all calls. Please understand we are committed to providing a high level of service with the limited resources available to us. Please call back knowing that when you get through to us your wait time will be significantly less.

I have been greeted by this message many times now. It is the ultimate Catch-22.

I must zero file with the State of Colorado or face penalties, but I cannot zero file without a “new and improved” special number from the state.

I have twice requested this special number online, but they will not send it to me.

They provide a phone number to call for help, which simply tells me they cannot answer my call and that I can do lots of nifty things on their web site. For instance, I can request a number they will not send.

If only Joseph Heller were alive today, I’m sure he could work wonders with this material. But alas, you’re stuck with me.

Anyway, I can’t help but think I should at least get the courtesy of basic customer service given how many thousands of dollars I’m paying the government.

Pay a private business thousands and you’d get a valuable product, good customer service, perhaps even a little respect. But pay the government thousands and you get a lump of coal in your sock and a message that says “bugger off.”

-Ryan M. HealySimilar Posts:

I Demand a New Tax to Fund My Marketing!

Ryan M. Healy — Thu, 10 Nov 2011 00:00:57 +0000

Some taxes never get put to a vote. Such was the case with the “Christmas tree tax” that was announced today in the Federal Register.

The tax is a 15-cent per-tree tax on growers and importers of fresh Christmas tree. Believe it or not, this tax was supported by many growers.

Why, you ask?

Good question.

It’s because tree growers wanted a reliable source of advertising dollars to fund the promotion of fresh Christmas trees. Says this Fox News report:

The 15-cent tax on Christmas trees was announced Tuesday in the Federal Register and was meant to pay for a new board tasked with promoting the Christmas tree industry. It was supported by Christmas tree growers, who wanted a stable source of revenue to fund a new marketing campaign.

Similar taxes have been implemented in the dairy and beef industries to bring you such slogans as “Got Milk?” and “Beef. It’s what’s for dinner.”

I have to wonder, why bother going to the federal government to get a new tax on Christmas trees entered as law? Why not just set up a voluntary collective of tree growers who contribute to a common marketing budget?

Seems like it would be simpler. Members could come and go as they please.

Oh, yeah…

That’s because it’s all about control.

It’s about getting the force of law behind you so you can force every tree grower to pay the tax, even those who don’t want to.

It’s about getting a personal advantage at the expense of your neighbor.

It’s shit. That’s what it is.

The federal government has absolutely no business giving out favors to business. Yet they do. They contribute their money and influence to the growth of the dairy industry, the beef industry, and hundreds of other industries.

All to buy votes.

To maintain their control and power.

It’s wrong. But it goes on.

Of course, the title of my post is facetious. I don’t want any favors from the government. As soon as you accept one, you’re bought and paid for, subject to whatever arbitrary rules they force on you.

That’s why I refuse to participate in tax-advantaged plans like HSAs and 401(k)s. I don’t want to give the government any more control over me than they already have.

Anyway, the backlash to the already-infamous “tax on Christmas” has been considerable, the critics many. And so the tax will be sidelined… for now.

I can only hope similar public outcries will fall upon other companies and industries who’ve lobbied the government for special taxes, favors, and benefits. (I’m talking to you, DMI!)

-Ryan M. HealySimilar Posts:

Internet Sales Taxes and Government Fairness

Ryan M. Healy — Mon, 07 Mar 2011 18:44:06 +0000

The cash-strapped California government wants to collect sales taxes from Internet-based businesses.

For the third time in three years, California lawmakers are pushing for legislation to make it harder for Internet sellers to avoid collecting sales taxes, and prospects for getting it passed are stronger than ever.

Passing the bill is a question of “e-fairness,” said Assemblywoman Nancy Skinner (D-Berkeley), who is sponsoring one of several Internet sales tax bills.

I find it quite interesting that elected officials are framing this new Internet sales tax around the issue of “fairness.” Skinner continues:

“Out-of-state online retailers designed their business model to avoid collecting sales tax,” she said. “This puts our Main Street businesses, which play by the rules, at a competitive disadvantage. It’s not fair to hurt California businesses that are struggling to keep their doors open.”

Of course, behind this statement Skinner implies two things:

Collecting and paying sales tax puts a business at a competitive disadvantage. (I agree.)

The only way to make it fair is to penalize online retailers so that they must collect and pay sales tax like brick-and-mortar businesses do. (I disagree.)

The issue of fairness is being used to manipulate citizens into going along with the new Internet sales tax. But if Skinner, et al, were really interested in achieving fairness, they could simply eliminate sales taxes for brick-and-mortar businesses.

Of course, we all know that will never happen.

That’s because the issue is not really about fairness — it’s about greedy politicians putting more money into their own pockets.

The author of this article — Rescuing Internet Entrepreneurs from Tax-Hungry States — agrees.

Small businesses are the engine room of the U.S. economy, responsible for most of the job growth in this country for years now. The Internet has helped small businesses hum along, and small businesses are coming to the rescue in helping to create jobs for the 15 million people now chronically out of work, as the U.S. unemployment rate stays stubbornly higher than 9%.

But since states blew a gaping estimated $125 billion to $140 billion hole in their finances with reckless spending and lax oversight, the small business Internet guy or gal on Main Street is now in their focus.

Increasingly, states are slapping new taxes on small online businesses, including demands to collect and remit sales taxes for out-of-state online purchases.

So instead of cutting the waste in their budgets, states have lazily mimicked the federal government in hiking taxes on the entrepreneurs who can create jobs.

Internet Sales Taxes Could Backfire

Ironically, if California or any other state tries to collect sales tax from Internet businesses, it may actually backfire and result in a reduction in tax revenue.

For instance, if California passed the bill referenced above, online retailers could simply choose to no longer sell products to people who live in California.

After all, it would be much easier to cease selling to California than it would be to try to comply with the sales tax law. Plus, it would send a clear message to any other states considering similar measures.

I greatly respect Amazon.com because they’ve been willing to stand up to state governments who’ve tried to bully them into submission. For instance, in March 2010 Amazon.com cut off all affiliates in Colorado because of a new law intended to force Amazon to pay sales tax.

While I was disappointed that I would no longer be able to promote Amazon as an affiliate, I was glad they stood up to Colorado legislators. (In fact, first chance I get I’ll vote against every person in office who supported the bill.)

More recently, Amazon announced it would close its distribution center in Texas because of the state’s efforts to force the retailer to pay hundreds of millions in back taxes.

Rather than comply, Amazon is pulling out. What’s more:

In his e-mail to staffers, Clark said Amazon also is scrapping plans “to build additional facilities and expand in Texas, bringing more than 1,000 new jobs and tens of millions of investment dollars to the state.”

California should pay attention to what’s happening in other states. Their efforts to tax online retailers could ultimately result in lost jobs for Californians and less tax revenue.

A Lesson Governments Need to Learn

What governments need to learn that many individuals have already learned is that… You must live within your means. You can’t keep spending money when there is no money to spend.

Furthermore, when you discover that you’re overspending, the first thing you need to do is find ways to reduce your spending. It’s a simple concept that almost anybody can understand. And yet most elected officials fail to grasp the concept.

But there is at least one bright spot: Wisconsin. Many politicians there recognize the gravity of their state’s financial crisis and are trying to reduce expenses.

Most reports about the recent political upheavals in Wisconsin have been oversimplified. Many of them have tried to paint the union members as poor government workers who barely make enough to get by. But the reality is far different that what the mainstream news reports.

In his article Wisconsin Teacher Salaries in Context, Dan Collins says:

On average, including benefits, Wisconsin teachers earn about $78k per year. I’m going to leave aside the “for nine months work” part of this, because I think it’s been hammered enough. The average household income in Wisconsin is about $52k per year. So, teachers earn about 1.5 times the average household income in Wisconsin when you factor in the benefits, and many of those households are two-income households.

More shocking still, Robert Stacy McCain reports that 859 Wisconsin public school officials made more than $100,000 per year in 2010. From the article:

Calvin Dodge employs spreadsheet software to calculate that these 859 individuals collect a combined $97.9 million a year, with an average annual salary of $114,000.

And yet the protesters in Madison say it would be grossly unfair to expect these public servants to contribute more toward the cost of their pensions and health insurance.

You know it’s a sad state of affairs when Wisconsin teachers make 1.5 times the average household income (for 9 months of work) — and still act like spoiled brats at the prospect of a reduction in benefits.

Public Sector Unions vs. Taxpayers

It’s overpaid teachers like the ones in Wisconsin (and the unions that represent them) who are the driving force behind governments that try to take even more tax-money from private businesses.

You’ll have to pardon me for not wanting to participate in this nonsense. The answer is not in collecting sales tax from Internet businesses, but rather in reducing government spending and bringing public salaries in line with the private sector.

The author of the above-referenced article “Rescuing Internet Entrepreneurs from Tax-Hungry States” sums it up nicely.

State tax increases that often come after pressure from government sector unions, who use their taxpayer paid for dues to lobby for tax and spending hikes that cost taxpayers a lot of money, hikes that they hector for to cover their benefit demands.

The public sector unions want you to think that their fights with governors who aim to pare back their cushy benefits the private sector doesn’t get — and that you pay for — is an Erin Brockovich moment. But it is not.

It is not the altruistic public sector union against an evil company. It’s the public sector unions against taxpayers, taxpayers who pay for their cushy benefits via higher property, income and sales taxes. And now many states want their Internet companies to help foot their bills, too.

Time to queue up the music…

“We’re not gonna take it, no, we ain’t gonna take it, oh, we’re not gonna to take it anymore…”

-Ryan M. Healy

P.S. Here’s an important update on the “aftermath” of Governor Scott Walker’s efforts to end collective bargaining among Wisconsin’s public school teachers. This was originally published on another blog I read in a post titled: Results of the new Wisconsin law that caused heated demonstrations last summer

Remember the violent and disgusting demonstrations over Wisconsin Gov. Scott Walker doing away with collective bargaining for teachers’ unions? The results are in. Some school districts went from a $400,000 deficit to a $1,500,000 surplus as a result. They are even hiring new teachers, not firing like the Liberals said would happen. Why?

It seems that the insurance company that provided all the “so-called” benefits to the teachers was an insurance company owned and operated by the teacher’s union. Since the outfit was guaranteed to get the insurance business from the teachers, and the State had to pay for it (not the teachers) the insurance company was increasing annual costs every single year to become the most expensive insurance company in the state. Then the company was donating millions and millions of dollars to its favorite democrat politicians who, when they got elected, guaranteed to keep funding the union’s outrageous costs. In other words, the insurance company was a “pass through” for Wisconsin taxpayer money directly to the democrat politicians.

Nice racket, and this is the racket that is going on in every single State that allows collective bargaining. No wonder the States are taking it away. Now the State of Wisconsin is free to put the insurance contract out for bids and, lo and behold, they have saved so much money it has turned deficits into surplus amounts. As a result, none of the teachers had to be laid off, everyone got a raise, etc., etc., and the taxpayers of Wisconsin don’t have to pay more taxes to fund the union’s political ambitions.

Similar Posts:

The Unfixable Ship: An Allegory

Ryan M. Healy — Wed, 08 Dec 2010 17:05:15 +0000

An old sea-faring vessel is making its way across the ocean.

It is a majestic galleon: three giant masts, huge billowing sails — something straight out of Moby Dick.

Unfortunately, the galleon is not as sea-worthy as it looks. It is 234 years old. The ship’s hull is simply not as sturdy as it once was.

Soon, a substantial leak develops and water begins to fill the hull. The men on the ship become alarmed and immediately begin discussing what to do about the leak.

They are still many miles from land. If they do nothing, the ship will sink and the men will be left adrift at sea. So they quickly conclude they must do something. But what?

The strongest men argue that every able-bodied man should begin bailing water. The weak men — those less muscular and unfit — believe only the strong men should bail. After all, bailing will be more taxing on a person with little strength.

The strong men believe it is unfair if they are the only ones bailing.

So the weak men suggest a compromise: For every three buckets of water bailed by a strong man, a weak man will bail one bucket. This, they argue, will be fair.

The strong men still don’t like the compromise. Keeping the ship afloat could mean the difference between life or death! Shouldn’t everybody do what they can?

Alas, the weak men outnumber the strong men five to one. They take up daggers and pistols and force the strong men to begin bailing water. The strong men have no choice so they begin to bail.

Occasionally, a weak man steps in to contribute, but it’s not enough. The water level continues to rise despite the valiant efforts of the strong men to keep the ship from sinking.

As the galleon slowly sinks, and the weak men gloat while the strong men labor, everybody ignores the suggestion of “Crackpot Jack” who was long ago dismissed as crazy: “Why don’t you just repair the leak??”

-Ryan M. HealySimilar Posts:

The Dream Stealer I Wish I Had Listened To (Or, How I Lost $30,000 on a Dumb Business Opportunity)

Ryan M. Healy — Mon, 01 Nov 2010 16:30:07 +0000

I’ve been in business since I was 12 years old.

Worked out a deal with the sales guys down at the Richmond model homes. I’d water all the plants in the model homes each Saturday and they’d pay me $5 cash. Not bad since it only took me an hour.

Gradually, I scaled up. Started mowing lawns, shoveling driveways, house sitting, baby sitting, delivering flyers, even raising money for mission trips by knocking on doors.

I officially entered the workforce at age 14, but I continued to think about how I could make it on my own, be my own boss. So at age 18 I became an Amway rep. And at age 21 or so, I took out a second mortgage to fund a very dumb business idea.

But I’m getting ahead of myself.

When I got married (I was only 20), it was like somebody lit a fire under me. All of a sudden, I wasn’t just interested in making money; I was driven. Honestly, a good portion of my drive was really just greed, which is why I was a sucker.

I was what they call a “hyper responder.” I’d buy just about anything that promised freedom and fortune. I bought programs about how to trade the commodities market (and I actually did that and made money); I bought programs on how to bet the horses; I even bought a program about how to become a “waste auditor.”

Most of these were relatively harmless pursuits since the total investment never topped more than a couple hundred bucks.

But as my drive intensified, I began to make larger investments.

I dropped $5,000 on a real estate investment course. I realized too late that I was uncomfortable using the techniques in the program; it was basically worthless to me.

And while that loss hurt, it didn’t hurt nearly as much as the next mistake I was about to make.

Blinded by Greed

One day I got a direct mail package that pitched the benefits of running your own vending business. I watched the video and saw testimonials from people who were making six figures a year, some as high as $400,000. At the time, it looked like a fantastic opportunity.

I decided to attend the local “seminar” to learn more about vending. The company was called Antares. Their goal was to sell vending machines.

By the end of the presentation, I was excited. Not only could you get vending machines from them, but they’d lock in your territory and even provide you with pre-printed direct mail pieces with a mailing list of local businesses.

It was the closest thing to guaranteed money I’d ever seen!

The only obstacle was how to raise the money I’d need to buy the vending machines. Three machines was roughly $20,000. You got a small price break if you bought five machines for $28,000.

Since I couldn’t see how the business could fail, I began to search for ways to raise $30,000 to pay for the machines plus the fairly hefty shipping fees.

First I went to a local bank. I figured they’d be more willing to work with me than a large institutional bank. My wife and I walked in and sat down with a banker, a really nice middle-aged man.

As we began to explain our plans, he became visibly concerned. “Look, I can’t fund a vending business. They’re notorious for having one of the highest failure rates of any type of business.”

In my head, I had already decided that I was going to do this, and I said so. It was clear the banker wasn’t going to budge on financing. But he was still concerned. So he did something almost nobody in business has ever done for me before or since: he tried to talk me out of buying.

“I’m going to take off my banker hat for a minute,” he said. “Look, if you were my own kids, I would still tell you not to do this. I just see way too much failure in the vending business, and I think you’d be wise to reconsider.”

We then wrapped up the conversation, said a friendly goodbye, and parted ways.

Of course, I was too blinded by my own greed to see the sincerity of the banker’s concern. And his objection only made me more determined. After all, I had been in Amway for three years. I knew what this guy was trying to do… he was trying to steal my dream!

And yet, in reality, he was probably the first honest banker I had ever met.

How I Raised $30,000 I Didn’t Have

At the time, real estate prices in Douglas County, Colorado, were skyrocketing. If you moved every year, you could pocket an extra $20,000 up to $50,000 depending on the size of your home. That’s how fast prices were rising.

In one neighborhood, the builder was raising the price of new builds by $15,000 every two weeks.

Even our one-bedroom condo had risen in value. In fact, based on the appraisal, I figured we could pull out $30,000 — just enough to cover our business investment.

So that’s what I did. Took out a second mortgage, bought the vending machines, and took delivery of them at our condo in Castle Rock. When the truck arrived, we unloaded the machines into our one-stall garage, excited to start our new venture.

The first step? Send out some direct mail, of course!

It’s the Quality of the List, Idiot!

At that time in my life, I’d never worked in direct marketing. I had no idea what a good response rate was. All I knew was this: I had five machines in my garage that needed to be placed.

So if I could get five people to respond who then wanted me to place one of my machines at their establishment, then I was on my way.

But I started to become a little concerned as I went down the list of names and businesses that were on the list Antares had provided me. Borders was on the list. So were a few other large franchises.

I thought to myself, “Why would a single location that is part of a national franchise have a start-up entrepreneur like me place a vending machine on their property? Heck, wouldn’t they do business with a national vending company to ensure consistency at every location? Isn’t that the point of a franchise?”

As I thought more and more about it, the quality of the list I’d been given was just not that great. I recall removing a few of the labels — like Borders — because I just couldn’t see them being my ideal target. It was privately owned businesses I was really after.

So I labeled my pre-printed direct mail pieces, paid the postage, and waited with fingers crossed to see what would happen next.

Responses? Well, Yes, But…

Within a week or two I had gotten two responses to my mailing — a big letdown. Fortunately, one of the responders had a large rented space in an office building, and they actually wanted TWO machines placed.

And, unfortunately, the other responder was a public school, and they only wanted HALF a machine. (The vending machines I had purchased were primarily beverage machines, but had a snack machine on the front. The two could be separated if needed.)

So I placed the machines and began business. That’s when I began to learn a whole bunch of things like:

All the schools in Douglas County have exclusive contracts with Coca-Cola. Only Coke products can be sold in D.C. schools, and the vending contract is exclusive, too. This is why they only had me place a snack machine in their break room.

It is very difficult to service vending machines when you have a full-time job, especially if the locations are far apart. Unless you’re bonded and insured, you can’t restock after hours.

It is really not possible to run a vending route with a little 4-door sedan. You at least need a truck or van. A vending truck with a refrigeration system would be ideal.

Some people drink a gallons of Diet Coke. (I was servicing one machine almost every day, and it was ALWAYS sold out of Diet Coke — one of the reasons I was eventually told they’d signed on with a different vending company.)

Canned drinks can actually expire. They don’t taste good after they’ve expired.

Buying cases of soft drinks and candy from Sam’s Club every week becomes tedious… tedious to haul the products home, tedious to haul them back out to the machines.

Unless you do really high volume, it is difficult to turn a profit. A small vending business is a money-losing proposition.

It’s hard to run a business you’re not passionate about. (I’m health-minded, so selling junk food was completely out of alignment with my values.)

If you post a $30,000 loss on your annual tax return, the IRS will probably audit you.

And another big lesson I learned:

A successful direct mail campaign shouldn’t be built on a single mailing. And yet one mailing is all I had. It was mail and pray. There was no “Step 2″ if “Step 1″ didn’t work.

Older, Wiser, and Poorer

For about a year, I held onto the hope that I might be able to make my vending machine business work.

But slowly and surely reality sunk in. I realized I wasn’t passionate about my business, and that my fledgling company was really an albatross around my neck. I didn’t want to run vending routes and I didn’t want vending machines.

So I began to look for ways to sell them.

I logged onto eBay and began to see what my competition looked like.

My heart sank.

Most people don’t know it until it’s too late, but used vending machines sell for pennies on the dollar, literally. A machine that sold for $6,000 new might sell for a couple hundred bucks used.

It was devastating, but I listed the machines anyway. Nobody responded (except one guy who contacted me with a question). I guess I wasn’t surprised. There were dozens and dozens of vending machines up for sale. I’d never seen so much supply and so little demand.

The auction expired and I still had my machines.

That’s when the “one guy” called me back. I’ll never forget him.

“You still have your machines?” he asked.

“Yep, I still have them,” I said.

“Well, I can give you $1,000 for all of them. If you agree, I’ll be by to pick them up tomorrow.”

I felt such a mix of disappointment and relief — disappointment because I realized just how much money I had lost; relief because the machines would be gone and I could “start over,” so to speak.

I said yes. He paid me, took the machines, and I was able to close that chapter of my business life. (Actually, that’s not entirely true. I still had to deal with the audit that followed. THAT was the final chapter.)

Heed the “Dream Stealers”

As I reflect on that time in my life, I distinctly remember two things:

The banker who gave me good counsel, which I ignored.
The savvy businessman who patiently waited to buy my machines for a rock-bottom price.

Sometimes it’s good to listen to the so-called “dream stealers.” You may think they’re being negative and trying to kill your ambition when really they may be trying to save you from making an exceedingly foolish decision.

And the real winner in this story was the savvy businessman. When he came to my condo to get the machines I asked him a few questions about his business. Turns out he had placed dozens of machines, but had never purchased them new. He had simply waited for foolish entrepreneurs to take the big financial hits, then bought up their machines for a fraction of the retail value.

He was cleaning up the mess left behind by Antares, a massive biz-opp company that preys on fools. And I’m sure he was doing well. Certainly, with so little invested in machines, he was able to turn a profit when I was not.

I’ll end with a verse, Proverbs 15:22: “Without consultation, plans are frustrated, But with many counselors they succeed.” Keep that in mind the next time you’re making a big financial decision, business or otherwise.

-Ryan M. HealySimilar Posts:

Why the Government Hates Small Business

Ryan M. Healy — Fri, 09 Jul 2010 16:20:48 +0000

When it comes to business, size matters.

If you’re a small business — or solopreneur — you have a distinct disadvantage over big corporations.

There are the obvious disparities. Corporations have deeper pockets, bigger ad budgets, greater economies of scale.

But the biggest advantage of all is the political leverage big corporations have that small businesses don’t.

This political leverage can be used to crush competitors. All it takes is the flick of the pen by a Congressman who’s caved into lobbyist pressure.

Here’s how one author puts it in his article No Jobs:

You see, the truth is that over the past several decades the game has become dramatically stacked in favor of large businesses. Big corporations have the money to lobby Congress and other governmental institutions, they get almost all the tax breaks and they are the only ones who get bailouts. They even “help” write legislation on the federal level.

Many times large corporations will even lobby for more regulations for their own industry because they know that they can handle all of the rules and paperwork far easier than their smaller competitors can. After all, a large corporation with an accounting department can easily handle filling out a few thousand more forms, but for a small business with only a handful of employees that kind of paperwork is a major logistical nightmare.

For proof, look no further than the proposed tax increases that would target individual service providers — but not corporations with more than three shareholders!

Although I haven’t researched it, I wouldn’t be surprised to find that the new law had been encouraged in part by corporations trying to “stick it” to their more nimble competitors.

But big corporations don’t always go after small business. Believe it or not, UPS is currently trying to get a law passed designed to hurt their biggest competitor — FedEx. Check out this quick video…

The bottom line is this:

No business should be able to use the long arm of the federal government to club their competitors. It should be illegal for any business to get special advantages from the government.

Giving businesses the ability to lobby the federal government encourages bureaucracy, bribery, and all kinds of high-level shenanigans — none of which actually improves the business itself or makes it more competitive.

If big businesses focused on continuous improvement rather than gaining unfair legal advantages, we’d ALL be better off, consumers and small business owners alike.

What do you think?

-Ryan M. HealySimilar Posts:

Big Government Targets Freelancers

Ryan M. Healy — Thu, 03 Jun 2010 15:34:07 +0000

Big government is getting desperate. They’re spending far more than they’re collecting. And now they’re doing whatever they can to bring in more tax revenue.

And that means more taxes, more IRS agents, and more audits.

This time, big government is targeting service providers. If you’re a freelancer, that includes you.

For the past few years, I’ve used a tax loophole to avoid paying payroll taxes on a portion of my income. I file as an S-corp so I can take shareholder distributions, which currently are not subject to payroll taxes.

But it appears this may change as soon as January 1, 2011.

As Megan Hughes reports, the S-corp tax bill has already passed the House.

Diane Kennedy then explains that, if passed by the Senate, the “American Jobs and Close Tax Loopholes Act of 2010″ bill would require service providers who file as S-corps to pay a 15.3% payroll tax on all distributions.

It’s critical that you educate yourself about these potential tax changes, especially if (like me) you’re a service provider who files as an S-corp.

This new tax bill would force me to pay an extra $7,000 per year in taxes, minimum. As you can imagine, I’m not too happy about that.

I see a couple possible ways to skirt the new tax:

1. Since the new law (unfairly) applies only to small corporations with three or fewer shareholders, I could perhaps bring the total number of shareholders from one to four.

2. Since the new law specifically targets service providers, then I could perhaps stop being a service provider and generate my income by selling products.

Just some things I’ve been thinking about since I learned of this new law over the weekend. And please, please make sure you read the two articles I linked above.

Update July 9, 2010: For now, it looks like S-corps are in the clear. According to Diane Kennedy, the S-corp bill failed to pass.

-Ryan M. Healy

P.S. Thanks to Ben Settle for bringing this issue to my attention.Similar Posts:

How Taxes Kill Business

Ryan M. Healy — Tue, 05 Jan 2010 14:38:01 +0000

I’ve got government on the brain since my corporate taxes are due January 15th. And, once again, Uncle Sam is digging deep into my pockets to take all he can get.

Scratch that.

It’s actually more like grabbing me by the ankles and shaking out every last nickel he possibly can, leaving me dizzy, disoriented, and questioning my decision to ever become an entrepreneur.

Why did I sign up for this annual shakedown anyway?

As I’ve said many times before, if U.S. citizens had to actually write checks to the government every quarter or every year, there would probably be a revolution overnight.

The federal government knows this. So the tax system is designed to keep your average citizen in the dark.

The U.S. Tax System: An Exercise in Deception

The U.S. tax system is designed to manipulate the majority of tax payers into thinking that the income tax is a good thing.

Employees hardly think about taxes because they’re paid through automatic payroll deductions. If you’re an employee, you couldn’t give to God first if you tried (unless your god is government, of course).

What’s more, the tax system is set up to make the average citizen feel a false emotional “high” every April 15. That’s because most people get tax refunds even if they’ve claimed the right number of deductions on their W-4 wage withholding form.

Never mind that your refund is your money anyway, or that the government has been keeping it all year; you still feel good getting a chunk of money every spring.

For an employee, taxes are easy. You work, you get paid, your employer remits your taxes for you. Once a year, you file your tax return and usually get money back. Occasionally you have to pay a little bit.

For an entrepreneur, taxes are far more complicated.

You have to track all your income and expenses yourself. You have to track business miles driven. You have to do all your own accounting or pay to have it done for you.

You then have to remit quarterly returns to various state and federal agencies (including the unemployment office, a government unto itself, and one of the worst-run bureaucratic agencies in the history of man).

And, if you’re making any kind of profit whatsoever, you are probably paying thousands of dollars in taxes every quarter, tens of thousands if you pay your taxes annually.

How’s that for a disincentive to start and run a profitable business?

How Taxes Killed a Business Before It Even Got Started

A few days ago, my wife mentioned to me that she wanted to start selling her handmade jewelry on Etsy. I strongly suggested she not do that.

At first she was puzzled. So I explained.

“Okay, so you’ve made a little bit of money from selling jewelry to family and friends — small cash sales that haven’t been reported to the government. As soon as you start running your hobby like a business, you’re going to have to give Uncle Sam his share.”

I could see she was not happy. I continued.

“You’ll have to set up separate business bank accounts for all income and expenses from your jewelry business. You’ll have to do quarterly accounting.

“And probably worst of all, you’ll have to do annual inventory on all the little beads and trinkets you still have on hand at the end of the year. After paying an accountant, you’ll probably be losing money on every necklace, bracelet, and set of earrings you sell.

“Let me put it in perspective. If you turn this into a business, you’ll probably have to make jewelry for the government for at least 3 months straight. The rest of the year you can then keep what you make, if you’re lucky.”

At this point, my wife was visibly angry. “But how can they do that? How can they just take my money? I already pay sales tax every time I buy something.”

“I know. It’s just the way it is. They get you on sales tax, income tax, real estate tax, car registration tax. There’s no end to it.”

My wife walked off, angry and frustrated at the government for placing such a formidable roadblock in front of her plans to run a small jewelry-making business.

Needless to say, she did not open an account on Etsy. And she has no plans to sell her jewelry outside of her friends and family because she has absolutely zero interest in accounting, doing inventory, meeting with a CPA, or filling out forms and sending a third of her earnings to the government.

(Not to mention, making handmade jewelry is low-profit and not scalable in the least — unless you’re hiring an army of Chinese people to do it for you.)

Funny how when it comes to taxes, ignorance truly is bliss — and being informed is borderline rage. It’s unfortunate so few people are informed.

Giving to Caesar What Is Caesar’s

Of course, as angering as taxes are for entrepreneurs and business owners, I much prefer working for myself to the alternative.

And so I labor on, giving the IRS whatever it demands so I can continue writing from home.

My only hope is that some day things will change and the federal government will loosen its grip on my productivity — and my pocket book.

-Ryan M. Healy

P.S. Here’s a good quick read on what happens when there’s too much government intervention: What We Can Learn from ArgentinaSimilar Posts: