Indies, you know that I frequently tell you that you are a business. That you must think like a business. That you must have an indie-business mindset. You also know that your business is small. Your business may be you and only you. You may call yourself a "small business" because you are.
There’s lots being said right now about tax credits, tax hikes, what’s good and what’s bad for small business.
Well, what exactly is a small business?
I think it will come as no surprise, that there is no "exactly." Let me give you some examples from our ever-present source: The IRS.
If Caitlin Caterer, who has three women working for her, or Lorenzo Landscaper, who has a couple guys help him out, were looking to take advantage of the "health care credit for small business," they’d qualify because, for this tax credit, small business is defined as any business having 25 or fewer employees.
If graphic designer Victor Visual wanted to carry-back the business loss he had this year in order to recoup some of the taxes he paid in previous years he’d be allowed to do that as long as his small business had gross income of not more than $5,000,000 per year over the last three years (yup, that’s five million dollars). Doesn’t matter how many employees Victor has as long as he didn't gross five million dollars.
If Sid System wanted to set up a medical savings account for the two techies who are his employees he’d be allowed to do that. Why? Because for the Archer medical savings plan the definition of small business is 50 employees or less.
And then there’s a whole lot of other “definitions” of small business. And this is where size really counts.
Based on the North American Industry Classification System (NAICS) the following are considered small businesses if their income is equal to or less than:
agricultural industries ---------------- $750,000.
heavy construction industries ----- $33,500,000.
trade contractors -------------------- $14,000,000.
retail and service industries -------- $7,000,000.
Or their number of employees is equal to or less than:
for most manufacturing and mining industries -- 500. employees
for all wholesale trade industries ----------------- 100. employees
(For complete list of size standards, see the Small Business Administration's Table of Small Business Size Standards.)
So indies, please be careful when people with an agenda throw around terms that have different meanings.
According to the IRS, in 2007 [most recent statistics available] 94% of businesses were S-corporations, partnerships, and sole proprietorships. I don’t want to boggle your mind but all those business entities pay taxes at the individual tax rates. Yes, that is so.
I’m a sole proprietor. I pay tax at an individual rate. If I hook up with another accountant and we form a partnership and split the profit, then we each pay tax at an individual rate. The same would be true if we formed an S-corp.
Randy Neugebauer, a Republican who represents the 19th District of Texas, as a guest blogger of Townhall.com, wrote on July 29, 2010, that "Ninety-four percent of small businesses will face higher taxes under the Democrats' plan."
Randy is using 94% to confuse us. You and I are part of the 94% of small businesses out there. So is just about everyone who visits my site. And! Most of us do not have at least $250,000 in taxable income.
I see Randy as intentionally muddying the water. Some may say it’s a lie. The Democratic plan is to keep individual tax rates as low as they currently are, except for those individuals with taxable income over $250,000.
Unless Mr. Neugebauer refers to small businesses such as retail manufactures with gross receipts of $7-million or trade contractors with a gross of $14-million he is deliberately misleading indies.
Indies send me lots of questions about the fear-instilling emails they receive that threaten tax hikes that will wipe them out. Don’t listen to that propaganda. Tell your indie colleagues not to be terrorized by this intentional misrepresentation. Get more information.