Commercial-Pair-3593 OP t1_j6ns084 wrote on January 31, 2023 at 5:17 PM

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

Let's say we have 2 identical businesses which have net income of 50k after self employment tax and deductions.

A is the only employment for the owner and B is owned by someone in the 22% tax bracket based off their day job. B will pay almost 12k in income tax while A pays about 6k.

A is more incentivized to start and run a business. A can be more price competitive with their products.

Let's say it takes 5k sales to net 50k profit before income tax ($10 per sale). Business B needs to do 800 more sales to make the same money as business A. And remember these are identical businesses so business B is also doing more work, 800 sales worth more, 13.7% more. So business B has an hourly pay rate that much less than business A.

PM_Georgia_Okeefe t1_j6nvu5k wrote on January 31, 2023 at 5:40 PM

Yes, but you know what A doesn't have: a day job they can go back to.

You're trying to have your cake and eat it, too.

Commercial-Pair-3593 OP t1_j6p7uhv wrote on January 31, 2023 at 10:37 PM

They could get a job. They had the same ability as me to do so. Take out some student loans, get experience, get an internship for more experience. Take shit entry level jobs. Change majors losing credits and taking 7 years to graduate. Work retail for 6 years while going to school.

The problem is that the business playing field is not equal. So because they have lese skills they get paid more? Can't you see how that doesn't really make sense? Maybe I can quit my job in the future but 48k after taxes ain't enough.