Plymouth LLC-5% tax-public hearing

jmen24 · 01-07-2010, 10:28 AM

This is a corporate business tax paid to the state, I have not heard of any other person being affected by this other than LLC business's. If you receive a draw or distribution of profits into a owner's pocket (100% shareholder) than why shouldn't the business pay taxes on that draw. The idea is to use your profits to grow your company (write off expenses), not take company profits and go buy a boat or toys or a second home. Use the money to grow your business and increase your salary as the business makes more profit. Everyone makes noise at the salaries of CEO's for major corps, but when the ratio of pay to company income is put into perspective with LLC's, I think you would fall on the floor.

This is to fill in a loop hole that bring LLC's in line with S-corps and other similar setups. The only people making noise are the ones that have been taking advantage of this for years. Welcome to the world of the big dogs, pay up like the rest of the corporate world does. You will figure it out or maybe you won't, either way it levels the field for those of us that have been paying this for years. I will agree that the percentage is to high but not to much is going to happen about that. We all complain about the politicians getting these loop hole tax breaks, granted they are not losing theirs.

You will also start to see the DBA's being phased out as well, it is already next to impossible to get a bank to set up an account for a DBA (sole proprietorship). To many (not all, but many) DBA's don't pay taxes correctly, if at all.

fatlazyless · 01-07-2010, 10:59 AM

[QUOTE=jmen24;11583To many (not all, but many) DBA's don't pay taxes correctly, if at all.[/QUOTE]

Hey.....correct me on this......as I seem to recall....a dba files federal taxes with form 1040 and pays the 7.65% share of the fica/medicare, while an LLC has to pay in both halfs of the 7.65% or 15.3% on the approximately first $100,000./year of wages. An LLC operates basically like a type c corp.

So, what is the big problem for a self-employed person to do business as a dba? A dba cannot purchase workers comp ins for himself and should definately have good liability insurance coverage appropriate to a painter.

jmen24 · 01-07-2010, 11:13 AM

Less, I was not completely clear on my stance of the Dba, I do not personnally care if they are allowed to operate or not, but the state and IRS do.
Most new startup companies (especially in the industry I am in) start as Dba's, they talk about how much money they make and at the end of the year when the tax bill is due they freak, because that money got spent on something other than what it should have been saved for. So, some of the ones that find themselves in this position, do not file their taxes, and they tell the IRS that they were an employee of the last company that they did work for (like me). Well we paid them without taking taxes out because they are a 1099 sub, so we get left with the bag to pay the taxes to the IRS, along with a 100% penalty and get a charge of tax evasion. Dba's create this type of mess all the time, especially in the contruction industry, Luckily our records are deep and well managed, so proving our case is not overly difficult, but it is an additional expense and headache that is caused almost solely by this one entity. Obviously not everyone operates this way and with us it has only been a certain few that we no longer work with, but the game continues. You want to talk about tax loop holes, thats the best game in town right now.

And it was a State Auditor that explained to us about the phasing out of Dba's.

And Less the reason a Dba does not carry workman's comp is the same reason that the owner of an LLC or S-corp does not get workmans comp, it is because they are covered under the general liability insurance. Only employees receive workmans comp insurance because they do not have the assets of a company to bail them out if they get injured and cannot work for a period of time. That is the cost of owning your own business.

fatlazyless · 01-07-2010, 11:31 AM

Thanks for your comments....appreciate that....and a dba is the most basic and simply way to be self-employed. Instead of having an employer who withdraws, pays and files one's federal tax & soc sec, it becomes the responsibility of the individual working as a dba. As everyone knows, New Hampshire does not have a personal income tax, so there's no NH income tax on dba's. Just the federal...

Returning to the topic of this thread, tonight's 6pm hearing on LLC's held in Plymouth: it has been getting some publicity in the state's biggest newspaper, the Union Leader, so could be there will be a big turn-out?

jmen24 · 01-07-2010, 12:04 PM

LI, you are correct and I do not think that there is any real fair way to determine that and the state should not be the one to decide.

The main detail of the law is bring the LLC's onto the same tax field as corporations, when an owner takes a draw above their salary it is a dividend and gets taxed as such, LLC's did not have to do that before. As an S-Corp, the owner takes a normal salary as the rest of the employees which allows for SS to build up for tomorrow. Anything above that is a dividend, much like an investment in a company's stock, and is required to pay a tax to the state on that dividend income, this is not new.

I have not read the law word for word as we are not directly affected, so there may be some wording in there that describes how this will be directly applied based on profit and payout.

WeirsBeachBoater · 01-07-2010, 10:45 PM

Just got back from the hearing. Pretty sure I spotted FLL... Can't wait to hear his take on it.

LIforrelaxin · 01-07-2010, 11:21 AM

Quote:

Originally Posted by jmen24

This is a corporate business tax paid to the state, I have not heard of any other person being affected by this other than LLC business's. If you receive a draw or distribution of profits into a owner's pocket (100% shareholder) than why shouldn't the business pay taxes on that draw. The idea is to use your profits to grow your company (write off expenses), not take company profits and go buy a boat or toys or a second home. Use the money to grow your business and increase your salary as the business makes more profit. Everyone makes noise at the salaries of CEO's for major corps, but when the ratio of pay to company income is put into perspective with LLC's, I think you would fall on the floor.

This is to fill in a loop hole that bring LLC's in line with S-corps and other similar setups. The only people making noise are the ones that have been taking advantage of this for years. Welcome to the world of the big dogs, pay up like the rest of the corporate world does. You will figure it out or maybe you won't, either way it levels the field for those of us that have been paying this for years. I will agree that the percentage is to high but not to much is going to happen about that. We all complain about the politicians getting these loop hole tax breaks, granted they are not losing theirs.

You will also start to see the DBA's being phased out as well, it is already next to impossible to get a bank to set up an account for a DBA (sole proprietorship). To many (not all, but many) DBA's don't pay taxes correctly, if at all.

Jmen, while I agree with what you are saying here, and I need to admit I am learning a lot here..... I think if Summo Dogs interpretation of the law is correct, the problem here really is a determination on that states part as to what a fair draw is for the owners of a LLC to make.

Well I will admit that quite often self employed people pay themselves to much. How on an idividual case by case bases can that line be drawn of when the extra penalty gets drawn into the equation. The amount of reinvestment into a company from it profits veries greatly by business type. A fence company vs. a computer repair company on a year to year basis could have the same profits, but one probably needs to reinvest into his business more then the other, thus making his salary lower.... So should the guy that can draw a larger salary suffer because he is able to pay himself more?

ITD · 01-11-2010, 09:57 AM

This is a perfect way for Plymouth to drive LLCs out of town, way to go Plymouth!!!! Just like NYC's tax on millionaires, libs thought it was a great idea, most of the millionaires, many of them probably libs, thought otherwise and moved away....

tis · 01-11-2010, 10:56 AM

You mean out of STATE, ITD. It is the state that is doing this. The hearing was in Plymouth. There are other hearings in other towns.

ITD · 01-11-2010, 04:03 PM

Quote:

Originally Posted by tis

You mean out of STATE, ITD. It is the state that is doing this. The hearing was in Plymouth. There are other hearings in other towns.

I stand corrected, thank you tis...

01-07-2010, 10:59 AM	#2
fatlazyless Senior Member Join Date: Apr 2004 Posts: 9,173 Blog Entries: 1 Thanks: 310 Thanked 1,103 Times in 812 Posts	[QUOTE=jmen24;11583To many (not all, but many) DBA's don't pay taxes correctly, if at all.[/QUOTE] Hey.....correct me on this......as I seem to recall....a dba files federal taxes with form 1040 and pays the 7.65% share of the fica/medicare, while an LLC has to pay in both halfs of the 7.65% or 15.3% on the approximately first $100,000./year of wages. An LLC operates basically like a type c corp. So, what is the big problem for a self-employed person to do business as a dba? A dba cannot purchase workers comp ins for himself and should definately have good liability insurance coverage appropriate to a painter. __________________ .... Banned for life from local thrift store!

01-07-2010, 11:31 AM	#4
fatlazyless Senior Member Join Date: Apr 2004 Posts: 9,173 Blog Entries: 1 Thanks: 310 Thanked 1,103 Times in 812 Posts	Thanks for your comments....appreciate that....and a dba is the most basic and simply way to be self-employed. Instead of having an employer who withdraws, pays and files one's federal tax & soc sec, it becomes the responsibility of the individual working as a dba. As everyone knows, New Hampshire does not have a personal income tax, so there's no NH income tax on dba's. Just the federal... Returning to the topic of this thread, tonight's 6pm hearing on LLC's held in Plymouth: it has been getting some publicity in the state's biggest newspaper, the Union Leader, so could be there will be a big turn-out? __________________ .... Banned for life from local thrift store!

Thread Tools
Show Printable Version Email this Page
Display Modes
Switch to Linear Mode Hybrid Mode Switch to Threaded Mode

01-07-2010, 10:28 AM	#1
jmen24 Senior Member Join Date: Feb 2009 Posts: 1,139 Thanks: 223 Thanked 319 Times in 181 Posts	This is a corporate business tax paid to the state, I have not heard of any other person being affected by this other than LLC business's. If you receive a draw or distribution of profits into a owner's pocket (100% shareholder) than why shouldn't the business pay taxes on that draw. The idea is to use your profits to grow your company (write off expenses), not take company profits and go buy a boat or toys or a second home. Use the money to grow your business and increase your salary as the business makes more profit. Everyone makes noise at the salaries of CEO's for major corps, but when the ratio of pay to company income is put into perspective with LLC's, I think you would fall on the floor. This is to fill in a loop hole that bring LLC's in line with S-corps and other similar setups. The only people making noise are the ones that have been taking advantage of this for years. Welcome to the world of the big dogs, pay up like the rest of the corporate world does. You will figure it out or maybe you won't, either way it levels the field for those of us that have been paying this for years. I will agree that the percentage is to high but not to much is going to happen about that. We all complain about the politicians getting these loop hole tax breaks, granted they are not losing theirs. You will also start to see the DBA's being phased out as well, it is already next to impossible to get a bank to set up an account for a DBA (sole proprietorship). To many (not all, but many) DBA's don't pay taxes correctly, if at all.

01-07-2010, 11:13 AM	#3
jmen24 Senior Member Join Date: Feb 2009 Posts: 1,139 Thanks: 223 Thanked 319 Times in 181 Posts	Less, I was not completely clear on my stance of the Dba, I do not personnally care if they are allowed to operate or not, but the state and IRS do. Most new startup companies (especially in the industry I am in) start as Dba's, they talk about how much money they make and at the end of the year when the tax bill is due they freak, because that money got spent on something other than what it should have been saved for. So, some of the ones that find themselves in this position, do not file their taxes, and they tell the IRS that they were an employee of the last company that they did work for (like me). Well we paid them without taking taxes out because they are a 1099 sub, so we get left with the bag to pay the taxes to the IRS, along with a 100% penalty and get a charge of tax evasion. Dba's create this type of mess all the time, especially in the contruction industry, Luckily our records are deep and well managed, so proving our case is not overly difficult, but it is an additional expense and headache that is caused almost solely by this one entity. Obviously not everyone operates this way and with us it has only been a certain few that we no longer work with, but the game continues. You want to talk about tax loop holes, thats the best game in town right now. And it was a State Auditor that explained to us about the phasing out of Dba's. And Less the reason a Dba does not carry workman's comp is the same reason that the owner of an LLC or S-corp does not get workmans comp, it is because they are covered under the general liability insurance. Only employees receive workmans comp insurance because they do not have the assets of a company to bail them out if they get injured and cannot work for a period of time. That is the cost of owning your own business.

01-07-2010, 12:04 PM	#5
jmen24 Senior Member Join Date: Feb 2009 Posts: 1,139 Thanks: 223 Thanked 319 Times in 181 Posts	LI, you are correct and I do not think that there is any real fair way to determine that and the state should not be the one to decide. The main detail of the law is bring the LLC's onto the same tax field as corporations, when an owner takes a draw above their salary it is a dividend and gets taxed as such, LLC's did not have to do that before. As an S-Corp, the owner takes a normal salary as the rest of the employees which allows for SS to build up for tomorrow. Anything above that is a dividend, much like an investment in a company's stock, and is required to pay a tax to the state on that dividend income, this is not new. I have not read the law word for word as we are not directly affected, so there may be some wording in there that describes how this will be directly applied based on profit and payout.

01-07-2010, 10:45 PM	#6
WeirsBeachBoater Senior Member Join Date: Apr 2004 Posts: 709 Blog Entries: 9 Thanks: 39 Thanked 148 Times in 65 Posts	Just got back from the hearing. Pretty sure I spotted FLL... Can't wait to hear his take on it.

01-11-2010, 09:57 AM	#8
ITD Senior Member Join Date: Apr 2004 Location: Moultonboro, NH Posts: 2,953 Thanks: 484 Thanked 703 Times in 393 Posts	This is a perfect way for Plymouth to drive LLCs out of town, way to go Plymouth!!!! Just like NYC's tax on millionaires, libs thought it was a great idea, most of the millionaires, many of them probably libs, thought otherwise and moved away....

01-11-2010, 10:56 AM	#9
tis Senior Member Join Date: Jan 2006 Posts: 6,946 Thanks: 795 Thanked 1,493 Times in 1,040 Posts	You mean out of STATE, ITD. It is the state that is doing this. The hearing was in Plymouth. There are other hearings in other towns.