The tariff issue

[ark steel]

You CANNOT include income tax as an expense in the calculation of, ahem, income tax. At what point do you stop?

The same goes for including income tax in determining price: If you can sell a unit for $5 at a cost of $4 and you decide to sell it for $5.35 to account for income tax, well now you have to raise price another $.12 to account for the 35% on the 35 cents, and so on and so on.

Meanwhile your competitor is letting supply and demand determine price (even if it means a price of $4.01) and watching you go out of business.

you can include income tax in calculation of profit, which is the purpose of being in business. You have done it (somewhat) above. you want 1$ profit, so you set your item at $5.54. you make your 1.54 profit, pay 35% and end up with $1. Divide what you want your profit to be by .65 and add it to the cost of the item. yes, I know supply and demand determines price (for the most part)

If supply and demand states that you cannot sell your item for that much, you have to decide a) is $1 profit enough for me to accept this risk or am I willing to lower the price and/or b) I'm going to invest my money elsewhere.

would you just start producing an item not knowing what your net profit will be? Seems crazy, to me.

 

[Troglodyte]

So, my competitor sells it at $4.01, makes 1 cent on the product, THEN pays 35% of that 1 cent to the government. They are getting 65% of 1 cent as profit and are happy about it? Why was I selling it at $5 to start with? Wouldn't I have gone out of business, anyway if my competitor is willing to take a ton of risk for 65% of 1 cent? I can tell you that if that is my profit, I ain't in that business. Most people won't be, for long, I would guess.

If your competitor is putting you out of business by charging a price you can't, or are unwilling to match, it's a short term risk for them that will pay off, even if they incur short term losses at that price.

Several years ago, West Penn Allegheny Health System tried to sue UPMC for (among other things) essentially making what would otherwise be horrible business decisions. They were signing physicians to ridiculous contracts for no their reason than to keep them from signing with WPAHS.

 

[SteelerInLebanon]

More than one way to skin a cat. Some companies prefer using a net-net P&L that is net revenue minus net expenses. That gives you a more pared down analysis of your core business. Of course, you can do gross revenues (including sales tax), and taxes calculated in, either as gross expenses, or at the bottom as its own line item - taxes, financial obligations, etc. In Hungary, this is complex analyis as you have varying sales tax - 27% on most items, but also 18%, 10% or 5% on others. On the cost side, same thing, some expenses carry 27% VAT, others don't. Payroll taxes are also astronomical and convoluted. Most of these taxes pretty much cancel each other out, especially if you have a good accountant. But to guage what your business is really doing, I like to see a net revenue, net expense P&L with the actual taxes owed as a separate line item. I'm sure it's different in the States, but that's how we do it in a market like this.

And if dems had their way we would have a market like that!

 

[Troglodyte]

would you just start producing an item not knowing what your net profit will be? Seems crazy, to me.

Don't most businesses go out of business because they were wrong about that very thing?

 

[ark steel]

More than one way to skin a cat. Some companies prefer using a net-net P&L that is net revenue minus net expenses. That gives you a more pared down analysis of your core business. Of course, you can do gross revenues (including sales tax), and taxes calculated in, either as gross expenses, or at the bottom as its own line item - taxes, financial obligations, etc. In Hungary, this is complex analyis as you have varying sales tax - 27% on most items, but also 18%, 10% or 5% on others. On the cost side, same thing, some expenses carry 27% VAT, others don't. Payroll taxes are also astronomical and convoluted. Most of these taxes pretty much cancel each other out, especially if you have a good accountant. But to guage what your business is really doing, I like to see a net revenue, net expense P&L with the actual taxes owed as a separate line item. I'm sure it's different in the States, but that's how we do it in a market like this.

I calculate various liabilities for a lot of CFO's. some is related to immediate liabilities and some is deferred. I do NOT deal with the taxation as I am not an accountant, nor do I know their specific taxation rates. My understanding is that they (almost exclusively) are accounting for net profit after taxes. I know for a fact some are because that information is used to determine how much compensation goes to the bigwigs.

 

[ark steel]

Don't most businesses go out of business because they were wrong about that very thing?

or they were dumb enough not to consider it......

 

[SteelerInLebanon]

I wouldn't reccomend it, lol. Corruption and 'grey' market activities are widespread, the convoluted tax code full of loopholes makes it almost impossible to play by the book. Thus it's not a level playing field for small and medium sized businesses, depending on how much risk business owners are willing to take to bend the law. Biggest mistake most central European countries made after the fall of Soviet Union, was not starting from scratch with their tax codes. It's basically been strung together with twine and duct tape and tweaked repeatedly based on short-term, political gains. The biggest issue is payroll tax. For an average worker, you would take home around $45 of every $100 earned. The cost on that for the company would be around $140. So $45 goes to the employee and $95 to the federal government in form of various taxes and contributions. Thus a large majority of Hungarians work on part-time, minimum wage work contracts (everyone's legal, on the books!) but actually earn a bit more than half of their real pay in cash, under the table. Then there's the 27% sales tax (highest in Europe, I believe) which also drives a lot of business dealings into the 'cash only, no receipt' mode. It's a minor miracle the economy hasn't collapsed yet. Pretty tough for multinationals to adapt to local customs, but you have to, if you want to do business in this part of the world.

Seeing what you see over there I don't understand your leanings towards the liberal agenda. Many of those things are the exactly what many Democrats are looking to institute so they can decide what happens with your own money instead of you. Economically at least you should be a hard core conservative.

 

[Ron Burgundy]

I wouldn't reccomend it, lol. Corruption and 'grey' market activities are widespread, the convoluted tax code full of loopholes makes it almost impossible to play by the book. Thus it's not a level playing field for small and medium sized businesses, depending on how much risk business owners are willing to take to bend the law. Biggest mistake most central European countries made after the fall of Soviet Union, was not starting from scratch with their tax codes. It's basically been strung together with twine and duct tape and tweaked repeatedly based on short-term, political gains. The biggest issue is payroll tax. For an average worker, you would take home around $45 of every $100 earned. The cost on that for the company would be around $140. So $45 goes to the employee and $95 to the federal government in form of various taxes and contributions. Thus a large majority of Hungarians work on part-time, minimum wage work contracts (everyone's legal, on the books!) but actually earn a bit more than half of their real pay in cash, under the table. Then there's the 27% sales tax (highest in Europe, I believe) which also drives a lot of business dealings into the 'cash only, no receipt' mode. It's a minor miracle the economy hasn't collapsed yet. Pretty tough for multinationals to adapt to local customs, but you have to, if you want to do business in this part of the world.

The free market always wins in the end. Always.

You CANNOT include income tax as an expense in the calculation of, ahem, income tax. At what point do you stop?

The same goes for including income tax in determining price: If you can sell a unit for $5 at a cost of $4 and you decide to sell it for $5.35 to account for income tax, well now you have to raise price another $.12 to account for the 35% on the 35 cents, and so on and so on.

Meanwhile your competitor is letting supply and demand determine price (even if it means a price of $4.01) and watching you go out of business.

On a level playing field the guy charging $4.01 will go out of business because he is basically selling at cost. He may not pay that much in taxes because his profit is small but if he has employees he will still have to pay their payroll taxes, unemployment insurance tax, workmens' comp insurance (which for me was a whopper), etc. and he is not making enough margin on $4.01 to do that. Now then, on the unlevel playing field I was faced with, I was forced to charge $5.35 because I did everything legitimately but my competitors were able to charge $4.01 because they didn't pay the taxes and insurance that I did and they got to keep all the money that came in...and the majority of potential clients didn't give a ****, they just want cheap. I always said when money gets tight, me and lawn guy are the first things people cut back on. So what do you do? After a while of beating one's head against a wall, you say "**** it" and sell your company or close up because the market isn't there to support your business. Like I said, the free market always wins in the end.

That's one reason why I put my company up for sale and went into the funeral business. What I do now isn't optional, everyone needs me sooner or later, and there's not a huge difference between what we all charge. In this economy you're better off being in a line of work where you need to be licensed or certified and something not everyone can do.

 

[Tim Steelersfan]

The free market always wins in the end. Always.



On a level playing field the guy charging $4.01 will go out of business because he is basically selling at cost. He may not pay that much in taxes because his profit is small but if he has employees he will still have to pay their payroll taxes, unemployment insurance tax, workmens' comp insurance (which for me was a whopper), etc. and he is not making enough margin on $4.01 to do that. Now then, on the unlevel playing field I was faced with, I was forced to charge $5.35 because I did everything legitimately but my competitors were able to charge $4.01 because they didn't pay the taxes and insurance that I did and they got to keep all the money that came in...and the majority of potential clients didn't give a ****, they just want cheap. I always said when money gets tight, me and lawn guy are the first things people cut back on. So what do you do? After a while of beating one's head against a wall, you say "**** it" and sell your company or close up because the market isn't there to support your business. Like I said, the free market always wins in the end.

That's one reason why I put my company up for sale and went into the funeral business. What I do now isn't optional, everyone needs me sooner or later, and there's not a huge difference between what we all charge. In this economy you're better off being in a line of work where you need to be licensed or certified and something not everyone can do.

There are some recession proof careers, like being a barber or a mortician. Good choice. We all die, we all have to get a hair cut.

 

[oneforthebus]

There are some recession proof careers, like being a barber or a mortician. Good choice. We all die, we all have to get a hair cut.

My husband helps companies adapt to and influence government regulations. Something else that there's always going to be a need for!