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A thirty thousand foot view, a subchapter s is how most small businesses incorporate. It provides some legal protections as a corporation, but the taxes are looked at as income tax. For example, you owned Ouderkirk’s coffee shop and register it as a subchapter s. All your gross income, before payroll, would be reported as personal income, even if 99% went right back into the business. If you had payroll employees versus contract employees, you could deduct their pay prior to net, but expenses such as FICA tax liability comes out of your net after payroll.

So, let’s say your coffee shop grosses $300,000 per year. You have two employees earning $25k each, so your net after payroll is $250,000. You report the $250,000 as personal income. But, you still have to pay things like rent, electricity, FICA on your payroll employees, etc. You may have a final personal net income of only $40k.

Now, imagine if Obama only looks at your gross of $250k and raises your taxes by $15k per year. Your other expenses don’t change, so, you either will take a lower personal net income of $25k per year, or, you would fire one of your employees.

Thanks for that explanation of how subchapter s works.

So, let’s say your coffee shop grosses $300,000 per year. You have two employees earning $25k each, so your net after payroll is $250,000. You report the $250,000 as personal income. But, you still have to pay things like rent, electricity, FICA on your payroll employees, etc. You may have a final personal net income of only $40k.

Most people don't understand that you cannot spend the money you report as personal income; you have to invest it back into the business - it's there to cover expenses, and payroll whenever your accounts don't come in on time ( which is very often, these days) and a whole host of other things. But the government, and stupid employees act like it's sitting in your pocket. Its not.

S corporations pay no Federal Income taxes. Profit or loss is passed through to shareholders and income taxes are paid there. Expenses are accounted for at the corporate level before the distribution.

The $250,000 is obviously net profit. That is a reasonable number for a moderately successful plumbing company.

So, let’s say your coffee shop grosses $300,000 per year. You have two employees earning $25k each, so your net after payroll is $250,000. You report the $250,000 as personal income. But, you still have to pay things like rent, electricity, FICA on your payroll employees, etc. You may have a final personal net income of only $40k.

Now, imagine if Obama only looks at your gross of $250k and raises your taxes by $15k per year. Your other expenses don’t change, so, you either will take a lower personal net income of $25k per year, or, you would fire one of your employees.

Thank you for clearing that up. That's exactly where 0dingabama wants to take us. The owner of the business takes a tax increase such that he gets punished to the same income level as his employees.