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Commercial-Pair-3593 OP t1_j6lb5y5 wrote

Reply to comment by shadow_chance in LLC and W2 earnings an income tax question. by Commercial-Pair-3593

Depends on how you look at it. If I am competing with businesses making less than $44,725 then they pay 12% tax while I am paying 22-24%. They get an advantage as a result.

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shadow_chance t1_j6lblrl wrote

You still end up with more money though. If you quit your W2 job, you'll be in the same position as them.

You also know how tax brackets work right? You only pay that bracket's % on income in the bracket. You don't pay 22% on everything.

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Commercial-Pair-3593 OP t1_j6lcivh wrote

Sure but it means I have to charge more to make the same profit as them.

I understand how it works, taking on a side job means that it effectively starts being taxed at 22%.

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shadow_chance t1_j6ld2kd wrote

I don't really get that perspective but if it works for you...

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RandallDC t1_j6lbs7h wrote

Wouldn’t money being reinvested into the business be deductible? I am not sure your scenario holds water.

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Commercial-Pair-3593 OP t1_j6ldj4s wrote

Because of what I make working 9-5, the tax rate on my business income starts at 22%. Yes there are deductibles but it's a level playing field with competing businesses in that regard. Also, I'm still unclear about purchasing equipment in future years but there is a limit to how much you can write off for start up costs. For example, if I spent 50k on tools and equipment and such to start up, I can only deduct 5k the 1st year. I have to continue writing it off in chunks over the next handful of years.

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RandallDC t1_j6llljz wrote

Fair. But conversely, you could take earnings from your W2 (which your competition doesn't have) and spend that money on your business to give you an advantage, couldn't you?

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Commercial-Pair-3593 OP t1_j6lps6c wrote

So make myself get paid less in my career to essentially pay for part of every person's product so I can reduce prices and be able to compete on price with other businesses? Doesn't really make sense. It took 10 years to go to college and get started in my career.

My career and my business are separate but I am taxed as if they are not which hurts my business. That's my point.

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