For Discussion: $2.3 Million in sales and effective tax rate of .3%

[MrMaster]

Convenience/gas station has sales of $2.2 million on a schedule C
Taxes paid in: $3,180
Taxes owed: $3,810

Net profit on the gas station was 49,500 before a schedule SE that lowered it to $7,000

from 2007 PERSONAL tax return

Our tax laws are totally screwed up.

 

[TallBill]

Not much of a profit.

 

[MrMaster]

Gross Profit was 323,000

 

[Drako]

Originally posted by: TallBill
Not much of a profit.

This.

Edit: you also might want to post a link to said return, becuase there are a lot of things that affect AGI. Stating profit/loss from one business is pretty meaningless without the whole picture.

 

[sactoking]

That's just a company with too much overhead/G&A.

 

[MrMaster]

but is it fair that they pay less than 1% on their taxes? They have plenty of cash flow.

 

[mugs]

Inaccurate title. That is not an effective tax rate of .3%, because income taxes are not based on revenues.

 

[Drako]

Originally posted by: MrMaster
but is it fair that they pay less than 1% on their taxes? They have plenty of cash flow.

Apparently you do not know the difference between sales and income.

 

[dphantom]

Originally posted by: MrMaster
but is it fair that they pay less than 1% on their taxes? They have plenty of cash flow.

Where do you get that? They paid taxes on 49K of income. If you or I made 49K that would very roughly what we would pay in income taxes. Sounds ok to me.

 

[BrunoPuntzJones]

Sales don't mean anything. I could show >$2,000,000 in sales tomorrow if I wanted to. If i sell 5 tank engines at $400,000 each. And they cost me $400,000 each, why should I pay tax on $2mil when I haven't made anything?

 

[Drako]

Originally posted by: BrunoPuntzJones
Sales don't mean anything. I could show >$2,000,000 in sales tomorrow if I wanted to. If i sell 5 tank engines at $400,000 each. And they cost me $400,000 each, why should I pay tax on $2mil when I haven't made anything?

Because they have "plenty of cash flow" silly .

 

[MrMaster]

Apparently we have some geniuses among us here today.

The title stated "sales and effective tax rate". It never stated that the tax rate is based on revenues.

I listed the gas station numbers off the tax return because the only income from the gas station that is reflected is the business income(loss) and those gas station financial are significant numbers in relation to a regular salary.

So lets try this again. Tell me why its fair that they can have sales in the millions and even subtracting out expenses still come out only paying taxes on a few grand ($29,000)?

 

[Drako]

Originally posted by: MrMaster
Apparently we have some geniuses among us here today.

The title stated "sales and effective tax rate". It never stated that the tax rate is based on revenues.

I listed the gas station numbers off the tax return because the only income from the gas station that is reflected is the business income(loss) and those gas station financial are significant numbers in relation to a regular salary.

So lets try this again. Tell me why its fair that they can have sales in the millions and even subtracting out expenses still come out only paying taxes on a few grand ($29,000)?

What was the AGI?

We can't tell you if it's fair or not becuase you aren't showing us the complete picture.

 

[BrunoPuntzJones]

Originally posted by: Drako

Originally posted by: MrMaster
Apparently we have some geniuses among us here today.

The title stated "sales and effective tax rate". It never stated that the tax rate is based on revenues.

I listed the gas station numbers off the tax return because the only income from the gas station that is reflected is the business income(loss) and those gas station financial are significant numbers in relation to a regular salary.

So lets try this again. Tell me why its fair that they can have sales in the millions and even subtracting out expenses still come out only paying taxes on a few grand ($29,000)?

What was the AGI?

We can't tell you if it's fair or not becuase you aren't showing us the complete picture.

Or he could just be a wealthy guy who runs the gas station for shiggles and gets a large deduction through contributions which are after AGI. I've seen it done.

 

[Genx87]

I looked into gas stations before as a business purchase. The one I looked at had sales of 3.2 million with net profits of 70K. The gas business is very low margin. In fact from what I could tell they make nothing from gas, if not lose money on the gas. They make money from the convience store or anything else attached to the station. For 70K, I could go get a career cubicle job and not be forced to work 12 hour days and worry my employee's would steal me blind.

 

[mugs]

Originally posted by: MrMaster
Apparently we have some geniuses among us here today.

The title stated "sales and effective tax rate". It never stated that the tax rate is based on revenues.

I listed the gas station numbers off the tax return because the only income from the gas station that is reflected is the business income(loss) and those gas station financial are significant numbers in relation to a regular salary.

So lets try this again. Tell me why its fair that they can have sales in the millions and even subtracting out expenses still come out only paying taxes on a few grand ($29,000)?

It's not an "effective tax rate" if it's based on an amount of money that's not subject to a tax. Your .3% number is as meaningless as if you used the sum of the cash in the pockets of every customer who walked through the store as your divisor. Belittle our intelligence all you want, because you're the only person who looks stupid.

Now, I will answer your new question. Consider that one of the significant sources of revenue for many convenience stores is lottery tickets. In NJ, the store's commission is ~5% of their lottery sales. For simplicity and illustrative purposes, suppose that this store had $2.3 million in sales, and it was 100% lottery tickets. The store only gets $115k from that $2.3 million in sales. Which number do you think they should pay income taxes on? $115k, or $2.3 million? Fortunately it's not $2.3 million, or all businesses would cease to exist. That $115k is before they pay their employees wages, rent, etc.

Obviously 100% lottery sales is atypical, but you understand that every other product they sell costs money too, and they ought to be paying taxes on the profit, right?

A store that does $2.3 million in sales would probably require the equivalent of about 10 full time employees to cover 3 shifts a day, 7 days a week (that's one employee working the overnight shift, 2-3 working each of the other two shifts each day). 10 FT employees making an average of $9/hr ~= $180k/year plus payroll taxes ~= $200k/yr. So even though other products have better margins than lottery tickets, labor is going to take a huge cut.

Consider that it's a gas station, so a significant portion of their sales are going to come from gas. Gas has very low margins, so that certainly won't help.

All that said, personal income of only $29k from a gas station/c-store seems low. Whether or not it seems legitimate is anybody's guess, because you haven't given us any information to work with.

 

[Fern]

Originally posted by: MrMaster
Convenience/gas station has sales of $2.2 million on a schedule C
Taxes paid in: $3,180
Taxes owed: $3,810

Net profit on the gas station was 49,500 before a schedule SE that lowered it to $7,000

from 2007 PERSONAL tax return

Our tax laws are totally screwed up.

Uhmmm. Excuse me but what's "screwed up" is your understanding of accounting etc.

A business can have sales in the billions and still post a loss. Thus no income tax at all (e.g., General Motors).

Retail gas sales (i.e., gas stations) have a notoriously low (gross) profit on the sales of (per gallon) gas. In fact, when prices were high some were selling gas at a loss after paying the credit card fees.

Viz:

sales ----------$2,200,000
cost of gas----$1,877,000
------------
Gross Profit $323,000

Less:
Rent -------------100,000
wages------------150,500
utilites, etc------- 23,000
------------
Net profit $49,500

(Note: the schedule SE deduction that you claim reduces the net income to $7,000 can NOT be correct. Schedule SE calculates Self-Employment taxes - 1/2 of which is deductible (like for any employer). The deductible portion of SE tax on $49,500 would only be about $3,700 (.0765 x $49,500. Must itemized deductions and personal exemptions bringing it down to $7K)

Fern

 

[mugs]

Originally posted by: Fern
(Note: the schedule SE deduction that you claim reduces the net income to $7,000 can NOT be correct. Schedule SE calculates Self-Employment taxes - 1/2 of which is deductible (like for any employer). The deductible portion of SE tax on $49,500 would only be about $3,700 (.0765 x $49,500. Must itemized deductions and personal exemptions bringing it down to $7K)

I was scratching my head about the $7k part, then realized that he was referring to $7k in income tax, not $7k income.