Small Business Tax Relief

The two or three people out there that read this blog probably already know this but just in case you're someone that randomly stumbled across this insightful blog, let me tell you one thing about myself: I, along with one other person, own a small business (we fix broken iPhones). This was our first full year as a business and by my own standards, I think we did alright.

We did about $120K in sales and walked away with a profit of about $40K. Now that's not going to make us rich (remember, we have to divide that profit by 2), but I feel that that's a pretty good start for a first year business. On top of that, we run our business really lean so, of that $40K in profits, the business has about $20K in cash in the bank.

I don't give you these numbers to brag but rather to illustrate a very, very important point: While we have been successful so far, we are far from rich business owners. Yet I spoke with our accountant yesterday and discovered that we are going to owe about $15K in taxes to the federal government (social security, medicare, and income tax). In other words, we owe over a third of all our profits to the federal government.

Now that might not be a big deal if we made 1/2 a million dollars in profits, but given our actual profits, that puts us in a serious cash flow problem. Why? Because we are in the process of trying to start up a retail space. That means we need to buy a significant amount of inventory and we would like to hire a few employees. By reducing our current cash on hand from $20K to $5K, the federal government is severely hampering our ability to grow as a company.

If President Obama and the Democrats are serious about helping today's economy to recover and regrow, they really need to make sure that small businesses like mine - new, small, growing, and limited on resources - have an easier time succeeding.

My solution? (Because I hate it when people just point out problems without offering some sort of solution.) I think new businesses should be excluded from the full 15% payroll tax. One option might be something like this: 0% the first year, 5% the second year, 10% the third year, and the full 15% after that. This would give startup businesses the chance to really grow at a time when cash flow is absolutely critical.

So, if in 3 months we don't have 5 or 6 part-time employees working for us, you can blame the federal government for limiting our growth.