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Last night Keith Olbermann railed Mitch McConnell, naming him ‘Worst Person in the World’  for suggesting that

“When our good friends on the other side of the aisle say raising taxes on the wealthy, they really mean small businesses,” in an interview on CNN’s Late Edition.

Here is what Olbermann ranted on about:

“…more importantly, if you own a small business and it pushes your own income over 250-grand and you haven’t incorporated and you haven’t been able to enjoy lower taxes that result and you’re still treating it as your personal income, you better ask to see your accountants diploma because in the vast majority of cases either you or he is crazy.”

Olbermann simply failed to do his homework, and instead relied upon supposed fact checking that wasn’t complete.  Instead, he referred to the statement as “Joe the Plumber crap” and said that checking the facts revealed only 2% of small businesses would be affected. 

If we poke around on the net, we find an article where “facts” were presented to support Olbermann’s opinion, in the CNN article Fact Check: Plumber Joe’s Taxes.  The CNN article isn’t factually incorrect, but it suffers the sin of omission, which is why Olbermann’s rant last night irked me as a small business owner!

In the CNN article, it says that “…[the] broad definition of what counts as a small business, including everyone who files a Schedule C, E and F. ”

“In 2005, there were 21.5 million Schedule C returns filed, according to the IRS.”

Since most Americans have no idea what a Schedule C is, they wouldn’t know that the CNN article fails to include Schedule K filings.  A Schedule C is for Sole Proprietors ONLY, that is, a business owned legally by one and only one person that remains unincorporated.  If you ask me, 21.5-million folks filing a Schedule C is a lot of sole proprietors out there.

But what about Schedule K? 

Schedule K is used to file Partners share of income, deductions, credits, etc. in partnerships, joint ventures, LLC’s and S Corporations – basically anyone doing business not as a full c-Corporation. 

In 2001 there were 23-million Schedule K filed with the IRS.  Taken together with those filing Schedule C, this is now no less than 44.5-million small business owners – a far cry from the CNN articles use of SBA data suggesting that based on the Census there were “6 million small businesses in 2005.” 

The IRS is a far more accurate agency for small business data than the Census Bureau; and the Census data also says that  “a firm is defined as the aggregation of all establishments owned by a parent company” – meaning if a person has a parent company and one or more subsidiary companies at the same time, they’re included as only one company in the data.

So was McConnell making a boldly wild statement when he suggested that “[w]hen our good friends on the other side of the aisle say raising taxes on the wealthy, they really mean small businesses”?

Nope – he’s dead-on…and Olbermann is the one who should have done his homework so he wouldn’t look the fool who knows nothing about small businesses, their owners, and how they have to structure their businesses legally in the United States.

Obviously Olbermann has no clue that doctors, lawyers and others classified as “professional service providers” have little choice but to organize as an LLC or S-Corporation – if they incorporate as a C-Corporation, they’re subject to the highest corporate tax rates because they’re defined as a personal service corporation, not simply a traditional corporation!

Olbermann is oblivious to the fact that it makes little sense for many business owners to go the route of incorporating as a C-Corporation due to the increased reporting required (translation: more time consuming paperwork) by the IRS and the very real double taxation they may face going for a C-Corporation. 

Here’s an idea – perhaps it is Olbermann that needs to sit with an accountant to get some facts before he speaks?

Let me spell it out for Olbermann about corporate taxes!

If a corporation makes between $100,000 and $335,000 – their tax rate is 39% (higher than if the owners kept their business as an sole proprietorship, simple partnership, LLC or S-Corporation).  Next time you hear the likes of Olbermann claiming small business owners are stupid, crazy or poorly structured in business -just remember, if they listen to him, they’ll be paying even more without a tax increase!

If professionals (doctors, lawyers, etc.) incorporate, structuring as a c-Corporation, their tax rate is 35% (higher than if the owners kept their business as a sole proprietorship, simple partnership, LLC or S-Corporation)

The tax rate actually goes DOWN if a business makes more than $335,000 a year – and has profits of less than $15-million….the tax rates for this range is 34-35% (still higher than if the owners kept their businesses as sole proprietorship, simple partnership, LLC or S-Corporation).

Even those corporations earning $15-million to $18.3-million pay less taxes (38%) than those making just $100,000 to $335,000!  Make more than $18.3-million and your taxes drop even more – to 34% (which is still more than if you allow the income to flow through to personal income since you’ll then have double taxation – the tax on the corporate profit and then taxed again when you pay yourself a paycheck from the corporation).

Oh and let’s not forget the Accumulated Earnings Tax – more money to pay on top of the above rates if a corporation has accumulated taxable income in excess of $250,001 ($150,000 for personal service corporations).   Yup – do that and you’ll pay an additional 15% ….. to put it simply, if you have profits of $250,000, Uncle Sam gets 39% first in corporate tax, then another 15% for AET – combined, that’s a tax rate of 54% if a corporation has a profit of just $250,000.

Yo, Keith – when is 54% of your profits less than 33%***? 
***the tax rate a small business owner will pay if they have their income flow through to their personal income taxes via proprietorship, simple partnership, LLC or S-Corporation

Me thinks Olbermann needs to go back to school and learn math, don’t you?