Death, Taxes, and Social Media

Facebook public launchNews broke last week that, despite bring in over a billion dollars in profit last year, Facebook owes no taxes for the year 2012. Actually, the company will be getting a refund of close to a half billion dollars. This is due to a provision in the tax law that allows companies to discharge all previous losses, from their date of inception, during the year that the company goes public, as Facebook did in 2012. However, this is not necessarily a one-time windfall as Facebook may continue to get monster tax breaks in the coming years. And Facebook isn’t the only major social media company with no federal tax liability. This week it was revealed that LinkedIn has paid no federal income tax over the past three years, in spite of an estimated $160 million in profits over that time span.

The irony here is that much smaller businesses and/or individuals who promote these large companies through their social media services get no such tax breaks. In fact, I know of fellow small business owners who are struggling to meet their tax obligations at this time. Of course, social media is just one example, as similar situations exist in all trades and industries.

Politicians try to exploit such unfairness with lofty talk of “ending tax break for millionaires and billionaires.” The richest of the rich, such as Bill Gates and Warren Buffet, often avail themselves as props for such proposals. After all, who has more to lose than the richest of the rich? And if they are in favor of higher rates, why shouldn’t we be?

But when the rubber meets the road, such as in the fiscal cliff agreement less than two months ago, these same politicians advocate that the top tax rates be raised on those who make $200,000 per year (hardly millionaires or billionaires). So the brunt of the burden is carried by the small businesses on the lower end of the spectrum and, even for those of us who don’t quite make $200K, many of our clients and customers do. As for the likes of Buffett, such rate increases make no difference because these wealthy entrepreneurs have armies of tax attorneys to offset any meager rate increase. In fact, Buffett’s Berkshire Hathaway has been fighting the I.R.S. over an estimated $1 billion in back taxes for over a decade (how many small businesses can afford to do that?).

The only real solution is to throw out the current tax system, which is loaded with loopholes for the crafty and traps for the less-connected, and replace it with a simple and straight-forward system for absolutely everyone. Such a common-sense solution will be vehemently opposed by tax attorneys and politicians who rely on the current convoluted tax system to grant special favors, but it would unleash an era of growth and certainty for everyone involved in commerce. Then even Facebook could “invest” in the infrastructure of our country.

~ Ric Albano

Sources:
NY Post
Yahoo
Mother Jones
Huffington Post

The Uphill Battle Facing Small Business

Next Saturday, November 24th has been deemed Small Business Saturday, positioned between Black Friday and Cyber Monday in the post-Thanksgiving shopping spurt. On the surface, this is a very good thing. It brings widespread awareness to small business in general and should cause consumers to think of the little noticed shops they may routinely pass on their way to the big box store.

I must admit, however, that I have some skepticism about this initiative. First, it was launched by American Express, a multi-billion dollar, multi-national, corporation that may be about as far from “small” as one can get. AMEX has also registered the terms “Shop Small” and “Small Business Saturday”, which means that an actual small business may get into trouble if they used these terms in this context without permission or sanction from AMEX. I don’t mean to dump too much on American Express as I still think this is a great awareness campaign for small businesses, but let’s be frank; it is a big advertisement for their financial services.

There is also a bit of cynicism with the term “small business” itself. It has been volleyed around the political world in recent times as a mere catch phrase, well focus-tested and positive. In a way, saying you’re in favor of small business is like saying you’re for “world peace”, a great sounding concept, but totally meaningless unless you’re willing to look at the finer details needed to achieve such a lofty goal.

In the past political season, we’ve heard both sides speak how they were in favor of “small businesses” or the “middle class.” But when you look at some of the finer details, you see that the opposite is true. When the IRS audits a large corporation, they receive an average of $9,173 per man hour in recovered tax revenue. When small and medium size business are audited, that figure is only $702 per hour, a ratio difference of about 13 to 1 in actual dollars for the U.S. Treasury. Yet small-and-medium-sized-businesses are audited about 30% MORE than large corporations. Why?

The answer is that small businesses are easier targets. They don’t have the resources to properly fight these audits, so they are “low hanging fruit” for bureaucrats who are more concerned with their own success rates than actual dollars recovered for the taxpayers and, of course, this proves devastating for many small business owners. This stat alone should make you furious but there are many more examples of the deck being stacked against small business.

The point is, small business is a great attribute in a free society but there are many unnecessary burdens that inhibit our growth and survival. Most people agree that they want small business to thrive and it is time we all take some responsibility in challenging these burdens.

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