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Comment by encoderer | Hacker News Reader

If I own half of a small business that made $500k in profits, you're right that I will show $250k of partnership income on my tax form. But whether I take it as salary or not is moot. You only pay taxes on business profits, so that wealth exists somewhere and 50% of it is mine.

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I think aggieben might have been referring to FICA, medicare, and all the other little taxes that small business owners get nickled and dimed with.

Yes, that, and it also depends on what state taxes on business look like, and you would also pay taxes on any of it that you put back into the business.

The point is just that there are many people with arrangements such that they might have to file on $250k+, but never realize that as personal income.

Every state that has personal income tax taxes llcs the same as the irs. I think you've bought into this canard that business owners are regularly paying taxes out of pocket and it can certainly happen but it's not common. And that's why the article didn't mention it.

There are other taxes and fees that add up. The State of California levies an $800 annual tax on every LLC doing business in the state, for example.

But that doesn't show up on your tax return. The commenter I replied to has repeated a common trope that there are small business owners who would be hurt by considering $250k as wealthy because of a quirk in our tax code (pass thru taxation). It's a canard because if you own half of a business making $500k in profit nobody should be worried about your tax bill. Income or not, you own a profitable business that is worth a lot of money. And he suggested that you pay taxes on money you invest back into the business which is not true. You pay taxes on your profits not your revenue.

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