Tax Laws...

I just want to express my discontent of the tax laws in the United States. I have a day job which puts me in the 25 to 28% tax bracket. I am not complaining so much about that. As a matter of fact, I was able to figure file my wife's and my taxes until... I started an online website and advertising hobby that actually turned out to start earning a little money.

At first it seemed great. All the programs that I was running would pay me tax free! I was very aware that since the transactions were all online and electronic, they were easily traceable. So I wanted to keep it honest and I knew I would eventually owe some tax on the money. I put like 80% of it in the bank since it was all gravy money anyway. At the end of the year, I decided to have an accountant (who was a friend of my dad's) figure out how much I actually owed. I was informed right off the bat that all the money I made on the side was subject to a "self proprietor" tax, which was 14% over and above my normal tax bracket. This made a total of 42% of the money I made on line went straight to federal tax. With State and local taxes, it came to almost 50% out the door. I wrote checks totaling $13,000. It really can make one second guess whether taking the time to build up a business online is really worth it.

Mr accountant guy said that I could save the 14% self proprietor tax if only I would incorporate. At that time it would amount to about $1500 a year. He said it would only cost about $300 and he hooked me up with an attorney to do the deed. That seemed easy enough, so I reported back to the accountant that I was now incorporated. He said that he would now have to file quarterly forms and I would have to prepay federal and state taxes and turn in my paperwork to him every 3 months. I met with him after the first quarter and sat down with him to discuss my progress. All seemed well, but the guy billed me $500 dollars! I called and asked him if that was going to be the case every quarter, and he said yes. I reminded him that it was his idea that I incorporate to save $1500, but now he was going to charge me $2000 a year? I think he got kind of pissed and put one of his cronies I'll call Walurus-Boy on my case.

I figured that was about how it was going to be, welcome to the real world. I worked on building the online business up so maybe it would be worth my while to pay Walrus-Boy $2000. To add fuel to the fire, the following year I opened an Ameritrade account on a stock tip from a guy I worked with to buy Sirius Satellite Radio stock. (this was 2004)I bought and sold the stock like 30 times during the year starting at $2.70 and finally selling out completely at around $7.00. I made close to $20,000 profit, but realized what a worry-wart I was becoming, sometimes buying and selling the stock a couple times a day. A couple times I called my wife from work to maybe pull the trigger on a trade. It was just too consuming and taking away from my new online business, so I closed the account and didn't even check the SIRI stock price for a couple months. I was happy to just be $20,000 in the black. Or so I thought...

For the next year's tax preparation, I turned in all the paperwork for 2004. I had kept track of how much money I had made from stock trading, but I guess I did not keep track of the exact date of every trade. I did keep track of the amounts but I guess that was not good enough. I was also informed when you don't hold a stock for a year before you sell it, you are subject to capital gains tax. Which when added to my regular tax bracket, amounted to around 50% again. Is this a great country or what? For 2004, I ended up writing a check for $10,000. Only this time I received 2 bills from Walrus-Boy for $500 each. When I called to talk to them about it, they wouldn't return my calls. Finally some woman from the firm called. I had no idea who she was and she was not familiar with my case. Both the owner and now Walrus-Boy were too busy to take my call. I called my attorney (yes the one recommended by the accountant) and explained to him what was going on. He agreed with me, that the accounting firm was trying to fire me like the chicken shits they are. He said to pay the 1 (one) bill for $500 and write "paid in full" on the check. If they cash it then we are even, but my days with them are done. They did cash the check and I never heard from them again. Now I had to find a new accountant that charges a reasonable fee.

I have been with my current accountant (great guy) and he charges me $200 a quarter, and $200 at the end of the year for our personal taxes. My online internet business has stayed the same income level. It grosses around $30,000 and yes, no matter how you work the numbers, about half goes to taxes. For me to take money out of the corporation, I can pay myself a payroll check of $2000 every quarter and take a dividend of $1000. With the payroll check of $2000, my company has to pay $56 to the IRS, another $563 to the IRS and another $109 to my state. The $2000 I pay myself now becomes personal taxable income, and my accountant generates a w-2. There is also the state department of workforce development (unemployment tax), and even my township taxes me on my office equipment inventory.

The bottom line is that the whole damn thing is just way too complicated to run a business. I can see why people say to hell with it, the system is set up for businesses to fail. I run the business out of my house, and half of everything I earn I do not get to keep. I wonder how businesses that rent retail space even make it, especially in today's economy. They may make enough to come out even, not the business owner's dream we grew up with.

If someone was to ask me now, would I recommend they start their own business, I would have to say no, to hell with it....