What does the term “pre-tax” dollars mean?
• So what are ” after-tax ” dollars? • Should I hire an accountant or a tax preparer to do my business tax returns? • What is a ” tax basis ,” and why do I care? • What is a ” capital ” account? • How do sales or use taxes affect my business? • What is the difference between depreciating and expensing an item? • What are capital gains taxes and how do they affect my business? • What are excise taxes and how do they affect my business? • Why do some businesses have different tax years ? • What kind of payroll taxes am I liable for as an employer? • Can I avoid payroll taxes by hiring independent contractors rather than employees? • What are the tax consequences of buying or selling a business? Q: How are businesses taxed? A: When people think of taxes paid by businesses, income taxes are probably what come to mind first. But income taxes are only one of many different kinds of taxes assessed against businesses by federal, state and local governments. Oftentimes, a tax on a business is c
The concept of “pre-tax” dollars refers to the ability to use income from revenues to pay for goods or services before having to pay taxes on the income. This may not sound like a big deal until you think about the fact that, if you add everything up, you may very well pay more than 50% of your earnings toward a variety of taxes. (In addition to income taxes that most of us pay, there are also capital gains taxes, estate taxes, social security withholdings, sales and use taxes, personal and property taxes, excise taxes and fees, luxury taxes, transfer taxes, assessments, licensing fees and more.) To explain the concept further, suppose you have to buy an airplane ticket for $500. Assuming a 50% tax rate, you would first have to earn $1,000 before you could pay for the ticket if it were not a tax-deductible expense (that is, the first $500 would go toward paying taxes and you would then have $500 left over to buy the ticket). However, if you are able to pay for the ticket on a pre-tax b
