Is it 'moral' that I will pay over 60% of income in taxes this year?

Discussion in 'Politics, Religion, Social Issues' started by classicaliberal, Dec 2, 2014.

  1. classicaliberal macrumors regular

    classicaliberal

    Joined:
    Jul 19, 2011
    #1
    Hello everyone.

    It's been about a year and a half since my last post here.

    During that time, I've been working a lot on my new startup company, which I'm blessed to say has been tremendously successful. I run the startup with my wife, out of our home which gives us a lot of time to spend with family.

    The process of starting a company has been incredibly rewarding. We get to be our own bosses, we make far more than we ever could on a salary, we get to hire and provide good-paying part time jobs for over 16+ individuals now, and the best part... (at least for me) is that I feel like I'm putting a real 'dent in the universe.'

    Every day I go to work, I get to create products/services that are loved by our customers. Products/services that actually improve people's lives, and that they're glad to pay for. The sheer amount of customer elation we get to experience when we go to tradeshows, through email, or over the phone, is incredibly rewarding and easily my favorite part of the job.

    Anyway...

    As I stated before, the business has been very successful and this year we are expected to GROSS ~$1,000,000 and NET ~$500,000 after expenses and before taxes.

    As you can imagine, our tax situation has changed considerably since both my wife and I were working on salaries previously. Today, we actually met with our accountant and tax consultant and discovered that just our Federal tax rate was 39.6%, and our effective rate (what we'll actually pay after all brackets are considered) is 34%.

    In addition to our Federal rate, we're also on the hook for 9% state income tax, plus property taxes, local taxes, sales taxes, and more.

    After doing the math, I've calculated that in 2014 we'll be paying an effective rate in excess of 60% of everything we earn this year to the government, leaving us with ~$200,000 after all is said and done. This is more than we spend on labor for all of our great employees, this is more than we spend on raw materials, and this is more than we make ourselves as the business owners.

    Of course the government provides certain services (with the vast majority of dollars going towards social services and 'defense', and a much smaller percent going towards things like roads, police, etc.) but does it seem right to anyone that the government's fee for these services should entitle them to a larger percent of the company's earnings than the owners themselves and the workers who make it all possible?

    I guess what I'm wondering from the community here is:

    • Do you think its moral for government to legally require by the force of law a business like ours to pay over half of their earnings in taxes?
    • Do you think the actual substance of products/services provided by the government justifies such a fee?
    • If an effective rate of over 60% is moral in your opinion, is there a percent where you believe it becomes immoral? If they confiscated 90%, would that be moral? 100%?

    Interested in everyone's opinions! I hope this can be a constructive dialog - and who knows, maybe someone here has some good tax strategies I can implement in the future? ;)
     
  2. Meister Suspended

    Meister

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  3. adroit macrumors 6502

    adroit

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  4. satcomer, Dec 2, 2014
    Last edited: Dec 2, 2014

    satcomer macrumors 603

    satcomer

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    #4
    This is the very reason why people want a smaller Goverment.
     
  5. yg17 macrumors G5

    yg17

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    #5
    My heart bleeds for you :rolleyes:

    I also hope you're not counting sales tax to inflate that number since customers pay that.
     
  6. Peace macrumors Core

    Peace

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    #6
    You should go from a LLC to a corporate structure where you and your wife get salaries.

    And to lump all federal ,state, and local taxes into one great big evil government isn't "moral" either.
     
  7. mobilehaathi macrumors G3

    mobilehaathi

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  8. bradl macrumors 68040

    bradl

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    #8
    Consider this. In the 1950s, individuals annually paid anywhere from 2% to 5% of their income in taxes.

    As of 2008, we as individuals were paying 51% - 53% of our income in taxes. We are currently at that 51% - 53% range now. That is why it is more commonly believed that we basically working to pay those taxes up until roughly the 1st week in July, then can keep what we get after that (coincidentally, Independence Day falls in that timeframe).

    Unfortunately, you have found one of the downsides to operating an S-type business. While you enjoy the perks of being your own boss and setting your own schedule, you have to manage the expenses of said business, plus personnel issues (wages, benefits, etc.), as well as taxes. QuickBooks makes it easy, but doesn't take away the overall cost of operating a business, plus taxes owed for running said business.

    You should itemize everything with your accountant to see if you are able to take all the deductions needed for your business, because while 60% may seem high, something tells me you're missing out on a lot of things that could be deducted of written off. If you didn't have employees, you could see about converting to a home-based business, where you could also deduct all expenses for your home as well. But something definitely tells me you are not deducting all that you can.

    If not, you're stuck, but it's rather hard for us to be empathetic if we are paying 51% - 53% ourselves.


    BL.
     
  9. skunk macrumors G4

    skunk

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    #9
    It's certainly very generous. Does seem a bit over the top. Sounds like you need a new accountant!
     
  10. Peace macrumors Core

    Peace

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    #10
    Consider this very wrong.

    In the 1950's the marginal tax percentage was between 20-91%

    http://taxfoundation.org/article/us...-2013-nominal-and-inflation-adjusted-brackets
     
  11. Mr Kram macrumors 68020

    Mr Kram

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    #11
    you need a new accountant and you need to set up your corporation for your benefit. my wife and i make more money, are included in the highest federal tax bracket and we live in california. we do not pay 60% in taxes...
     
  12. classicaliberal thread starter macrumors regular

    classicaliberal

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    #12
    That's ok, I'm not looking for sympathy. ;)
    Sales taxes paid by customers are not included in my numbers.

    Our company is a LLC right now.

    We are doing well - definitely doing better than we were a few years ago! For clarification's sake, are you suggesting though that by 'doing well' we should just be happy with what we have and not question or suggest improvements in the existing system?

    Thanks. I actually don't think my situation is all that unique - so many middle class earners are paying near 50%. I think the same argument applies for most - I just used my own financials as an example. It's also amazing how much more you pay attention to taxes when you're taxed as a lump sum at the end of the year AFTER the money has spent some time in your checking account, than if you never saw it in the first place due to payroll deduction.
     
  13. yg17 macrumors G5

    yg17

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    #13
    You mentioned sales tax in your post.
     
  14. Arran macrumors 601

    Arran

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    #14
    Yep, that's how you play the game!
     
  15. mobilehaathi macrumors G3

    mobilehaathi

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    #15
    You're salary puts you in the upper-middle class. You folks tend to pay the highest percentages of anyone, so I can understand why you're rather taken aback. Especially so, given the abysmal nature of public social serves in the US (I'm assuming you're in the US).

    I'm hardly an accountant, and I have literally no idea about your business finances. So I can't comment on how typical your particular tax situation is.
     
  16. classicaliberal thread starter macrumors regular

    classicaliberal

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    #16
    The top federal rate is 39.6% and the top California rate is 12% which would put your income taxes alone at 51.6% alone.

    How low have you been able to get your effective income tax rate if I may ask...

    ----------

    Meaning sales tax we pay on products we purchase.
     
  17. mobilehaathi macrumors G3

    mobilehaathi

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    #17
    Only if they make an infinite amount of money.
     
  18. Peace macrumors Core

    Peace

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    #18
    Federal income taxes for 1955 :

    Married Filing Jointly

    78.0% between $120,000 and $140,000
    81.0% between $140,000 and $160,000
    84.0% between $160,000 and $180,000
    87.0% between $180,000 and $200,000
    89.0% between $200,000 and $300,000
    90.0% between $300,000 and $400,000
    91.0% for anything over $400,000



    https://www.scribd.com/fullscreen/1...llow_share=true&escape=false&view_mode=scroll

    If this were 1955 you would be paying 91% in just federal income taxes.
     
  19. g.t. rags macrumors 6502

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    Long Island
    #19
    you're looking at the equation from the exact opposite way the gov't looks at it.

    you pay tax on what you earn

    after that, what you clear, you pay tax on what you purchase, as well as the land you live on

    everyone is in the same boat, dude i make 100k a year and only get to take home about 65% of it, then make all my payments which include taxes

    its how our country works

    what you need to do is write off everything through the business, this way you can have it deducted as an expense before taxes. my good friend does it, and may only take home 2800 a month, on average, he only has to pay a mortgage, cable bill, power water and heat and phone.... which he splits with his wife.

    a 500 dollar car payment only effects his take home by 320 or so, just to give you an idea....
     
  20. classicaliberal thread starter macrumors regular

    classicaliberal

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    #20
    ;) Trying to keep things simple. Obviously his effective rate is going to be only fractionally lower.



    Right, and going back another 50 years would have left me with 0% income tax. I'm not really sure how contrasting current rates with past rates makes a very strong point one way or another as to the morality of current rates?
     
  21. Peace macrumors Core

    Peace

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    #21
    The "morality" is the tax rates have gone way,way down since 1955.

    That's a positive thing.

    You should be happy to be paying only 34%
     
  22. skunk macrumors G4

    skunk

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    #22
    If this were 1955, that $500,000 would be several million in today's money.
     
  23. mobilehaathi macrumors G3

    mobilehaathi

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    #23
    Just injecting my own (pedantic) style of humor.;)
     
  24. Peace macrumors Core

    Peace

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    #24
    If only..


    ;)
     
  25. classicaliberal thread starter macrumors regular

    classicaliberal

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    #25
    Right... I actually don't think my situation is all that unique as far as taxes go. I simply offered my own financials as an example, since I'm in the thick of it, and my new financial situation has made me look at the tax system from a fresh perspective.

    I'm mainly wondering what the community thinks about government taking over half of what we earn as middle class citizens. If we work 300 days a year, its pretty striking to me that we worked 150 of those days for the government. In my own case, I'm left wondering what I could have done with that extra 60%... who could I have hired? What inventory could I have stocked? What website could I have built? What new products could I have come out with?

    ----------

    Right, I see what you're saying. Like I mentioned though, if we draw the line from a different time, tax rates have gone way, way, up since 1905. So I guess you could draw a 'trend of morality' graph in different directions depending on your starting point.

    ----------

    I like it. ;)
     

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