Last night Palin tried again to claim that Obama's proposal to rescind the Bush tax cuts on incomes over $250,000 amounted to a tax increase on small business that would result in job losses.

Uh, can we talk about this real quick?

Now that I've been self-employed for a little while (I know some of you guys have been doing this for years) I've learned a lot about taxes. Palin's claim is based on the fact that for many self-employed people, the "profit" from your business activities (aka the money you make after deducting business expenses) is recorded on a form called Schedule C and then "passes through" to your 1040. In other words, the money you make as a self-employed person is taxed as though it were plain old income. So in theory, if you are self-employed and earning over $250k, you'll pay more in taxes, just as you would if you had an ordinary job that paid over $250k.

So Palin's theory is that lots of small business owners -- not self-employed people but owners of actual businesses that hire and employ actual staff -- are using Schedule C and allowing their business profits to pass through as personal income.

That may be the case, but with all due respect those small business owners are fucking retards who need to get a better accountant and educate themselves about the tax code. I mean, if you have a real small business with real employees, you really ought to become, like, an actual LLC or other corporation. Then your profits are taxed at the corporate rate, which is much lower than the marginal rate for almost any personal income tax bracket.

And if that paperwork is too complicated, they can at least become a "S corporation." Under this designation, the business owner pays himself a small "salary" out of the profits. This salary is taxed as income, so you set this salary as low as you reasonably can. Then, you pay the rest of the profits to yourself as a dividend, which is taxed at a much lower rate than personal income.

Plus, even if you stay as a "C corporation" -- the default setting, in which you file Schedule C and all your profit passes through to you as income -- there are zillions of deductions out there that you can use to reduce the amount of "profit" you have to report. There's everything from the use of a room in your house (which makes a portion of your rent and utilities deductible) to a much, much more generous IRA deduction that allows you to deduct almost 25% of your income.

So this claim of Palin and McCain's is really groundless. Plus, the vast majority of what they're characterizing as "small business" -- taxpayers using Schedule C or Schedule S -- are either individual freelance workers who employ nobody or people living off investments and dividends.

It's true that any self-employed person or small business owner has to pay the self-employment tax. If you work for a company, you pay half the social security and FICA and the company pays the other half. But if you work for yourself you have to pay it all -- this other half is the self-employment tax and is basically an extra 7% on the first $100k you make. BUT -- nobody is talking about eliminating the self-employment tax. Nobody. That shit is never going to go away.