Tax Question?

[DickR]

What determines if someone has self-employment income that is subject to the business profits tax? If he has such income, doesn't he in effect have a "business?" And what constitutes the "profit" from that business on which he would owe a tax - does it include income he takes from the business as "salary?"

[Shreddy]

Originally Posted by DickR

What determines if someone has self-employment income that is subject to the business profits tax? If he has such income, doesn't he in effect have a "business?" And what constitutes the "profit" from that business on which he would owe a tax - does it include income he takes from the business as "salary?"

If you have gross receipts of less than $50,000 you do not have to file a BPT return. The BPT rate is 8.5% of NH taxable income. If you end up paying Business Enterprise Tax (BET), you can use that as a credit against any BPT owed. Business Enterprise Tax is a .75% tax on the following expenses of a business; salaries and wages, interest paid, dividends and retirement contributions. You are not required to file a BET return if the sum of these expenses is less than $75,000.

If you are self employed, I'd assume you don't need to take a salary. You will get taxed as ordinary income on the net income that you make (Revenues - Expenses). Self employed individuals are subject to SE tax (federally) as they are essentially both the "employer" and "employee". The SE tax is in place as a self-employed individual does not have any withholdings (federal, SS, med). Regular, non self employed employees, receive a paycheck and these taxes are withheld on a regular basis.

[tis]

Originally Posted by DickR

What determines if someone has self-employment income that is subject to the business profits tax? If he has such income, doesn't he in effect have a "business?" And what constitutes the "profit" from that business on which he would owe a tax - does it include income he takes from the business as "salary?"

The BPT is a tax on the PROFITS a business makes after expenses. The BET was instituted really to get professionsals (doctors, lawyers etc.) to pay a tax on their salary. An owner of a business pays BET on his/her salary, so they pay on profits AND their salary. BET is really like an income tax for those who work for themselves.

[DickR]

Originally Posted by tis

The BPT is a tax on the PROFITS a business makes after expenses. The BET was instituted really to get professionsals (doctors, lawyers etc.) to pay a tax on their salary. An owner of a business pays BET on his/her salary, so they pay on profits AND their salary. BET is really like an income tax for those who work for themselves.

It seems then that in NH most of the self-employed pay a state income tax in the form of BPT, while those who work for someone else don't. A man's employer would deduct the expense of the income paid to the employee and pay BPT/BET on what's left. Is that right? That sounds like a disencentive to starting one's own business. I hope I have that wrong.

Since no filing is required for BPT if that income is less than 50 grand, I presume that is the "standard deduction" beyond which BPT is paid. Is that so?

[tis]

Originally Posted by DickR

It seems then that in NH most of the self-employed pay a state income tax in the form of BPT, while those who work for someone else don't. A man's employer would deduct the expense of the income paid to the employee and pay BPT/BET on what's left. Is that right? That sounds like a disencentive to starting one's own business. I hope I have that wrong.

Since no filing is required for BPT if that income is less than 50 grand, I presume that is the "standard deduction" beyond which BPT is paid. Is that so?

That's right, in my mind it is really an income tax on employers while employees don't have one.

[songkrai]

All of those who work in a neighboring state do have to file and pay income taxes to the neighboring state.

This is all lost revenue for New Hampshire. How many people live in NH and pay income taxes in MA, VT, and ME is not easy to calculate. Nor is the amount of revenue lost by New Hampshire to those neighboring states.

[neckdweller]

Originally Posted by songkrai

All of those who work in a neighboring state do have to file and pay income taxes to the neighboring state.

This is all lost revenue for New Hampshire. How many people live in NH and pay income taxes in MA, VT, and ME is not easy to calculate. Nor is the amount of revenue lost by New Hampshire to those neighboring states.

If NH ever set up an income tax, I'm pretty sure New Hampshire wouldn't be able to collect income tax if the income is from a neighboring state unless the NH tax was higher. For example, my MA income is taxed at (rounded) 5%. NH would be entitled to collect taxes on my income only if their tax rate is above that 5%. This is similar to how Massachusetts sets up their tax returns - you get a credit for any tax paid to the state where the income was earned.

[Rattlesnake Guy]

From the Tax Policy Center

Income tax is generally imposed by the state in which the income is earned. However, various states have entered into reciprocity agreements with one or more other states that allow income earned in another state to be taxed in the state of residence. For example, Maryland’s reciprocity agreement with the District of Columbia allows Maryland to tax income earned in the District by a Maryland resident. As of 2004, sixteen states had adopted reciprocity agreements; typically these are states with employment centers close to a state border and large flows in both directions.


I think Massachusetts would be foolish to enter such a reciprocity agreement with New Hampshire due to the lopsided balance of Mass earners to NH earners who cross the boarder each day. A simple view of the traffic in the morning says it all.

[no-engine]

I have not read all the posts on this thread.
HOWEVER, I CANNOT STRESS ENOUGH THAT A FORUM SUCH AS THIS IS NOT THE PLACE TO OBTAIN LEGAL, ACCOUNTING ADVICE.
ONE SHOULD SEEK PROFESSIONAL ADVICE IN A CONFIDENTIAL SETTING.