to business people: what do you do with a tax cut when you don't have customers?

[yurbud]

Obviously, you have some, but if you can already produce more than the demand, why would a tax cut make you hire someone else?

What else would you do with the money? Invest in some other business whose product isn't in demand?

[dkf]

1. Well if you have less customers and less revenue then you use it to keep paying your workers.

Otherwise you may have to cut their hours, lay them off or cut their benefits.

[yurbud]

2. you are a very conscientious employer.

I wonder if large corporations do that too.

[dkf]

4. Actually that's what my boss does for me.

Revenue was down a few years ago so sometimes he wouldn't even get paid because our monthly revenues aren't completely smooth.

I fully realize his tax rate and take home pay has implications on if I get a raise or not and if we get to keep our part time worker.

[yurbud]

13. if he didn't pay himself he is a moral miracle.

[JHB]

8. So where is the requirement you have to retain workers to get the tax break?

If there's nothing to stop you from laying off workers AND taking the tax cut, the best thing for your bottom line is to do both.

How does that create jobs?

[dkf]

9. It's not a requirement but it preserves options.

On the other hand if you don't have the money to survive yourself then you may need to lay off or cut wages.

[JHB]

11. Then it might be a smart idea to make it a little more mandatory than merely "preserving options"...

...so that it actually functions in the way that it was advertised, and isn't simply a giveaway to those who already have plenty of resources to create jobs but don't see it as in their interest to do so.

An employee is overhead on their books. The demand generated by that employee's spending does not directly contribute to their bottom line, unless he's buying from a company store. That math says they should not add to their overhead, and should just take the tax benefit anyway.

[QC]

3. You sell to customers in other parts of the world.

India and China will soon have middle classes much larger than the entire population of the U.S.

The economic elite is abandoning the U.S.

[upaloopa]

5. Here's what most often happens.

If you have a sole proprietor business, when taxes are high you want more expense given a certain level of revenue to offset the taxes due on net income.
To do that you can pay yourself salary though you still have to pay tax on it. You can increase your companies contribution to a retirement plan. You could hire more workers or any number of new expenses. You could buy depreciable equipment.


When taxes are low, there is not the need to increase expenses to protect net income. This could mean you don't need to ad to the work force also.

[yurbud]

6. that took me a minute to unpack in my head but it makes sense.

[yurbud]

7. But what do you do with the extra net income in the low tax scenario?

[upaloopa]

12. You leave it as cash in the business

[dkf]

10. Show the numbers that illustrate a higher tax rate lands up with more take home pay please.

And consider that all current take home pay is necessary to keeping up a lifestyle.

[upaloopa]

14. OK, you are a sole proprietor. You do some tax planning for this year before Dec 31.

(These are all made up numbers) The given is that in each scenario your net income is the same. The variable is the tax rate on your gross taxable income.

You have a 6-30 business fiscal year end. This gives you some months to adjust your business net income before your personal year end of 12-31.

You know what your tax rate is going to be based on all your other income and deductions and current IRS rules. (this is done by your accountant usually)

At your estimated tax rate say you will owe $200,000 given all the income and deductions you know you will have.

Say the estimated net income of your business is $1,000,000. which is income on a schedule C on your personal income tax.

You want to lower the $200,000 taxes you will owe so you need to come up with more business expenses to lower the net income of your business. So say you increase your business contribution to your personal retirement plan thus increasing your business expenses and reducing the net income and thus reducing the schedule C income and your personal income tax expense.

You could just as easily buy a new car or cars for your business and take accelerated depreciation thus having the same outcome of the increase to your retirement plan.

You could hire your kids or other people to build up your inventory for six months increasing your payroll tax and salary expense.

You could do any number of things to increase your business expenses that also increase your business assets (cars or inventory in this example) or personal retirement assets rather than give the money to the IRS.


On the other hand if taxes were low and you didn't mind the amount of tax that will result in your schedule C net income from your busieness you don't need to add extra expense to offset the tax so you keep the extra net income after tax in the business as cash.


Another thing you could do if taxes were high or low, you could increase your business expenses to the point were you had a net loss. The loss would reduce your taxable income and if you could reduce it to where you don't owe tax and still didn't use up all the loss you could pass the remainder of the loss to future years to reduce those taxes or carry it back to reduce past year's taxes. You can't continue to have net losses each year and get out of paying taxes. At some point you have to show net income or lose the ability of using the net losses to reduce taxes.



Lowering taxes on profitable businesses doesn't mean they will take the extra income and hire people, they usually bank the extra income. Higher tax rates leads business owners to want to reduce taxes and use the money in the business rather than give it to the IRS.