Tax Question

[SoutherDem]

Over the last 3 years (about the time since Obama won) I have been hearing news coverage on raising taxes or more specifically ending the Bush tax cuts. In general they remind us all that many "small businesses" file personal taxes, so ending the Bush tax cuts will hurt small business, they make this argument no matter where the beginning line is drawn, $300K, $500K, $750K or $1M. But I keep hearing different explanations as to how those taxes are calculated. I have heard 3 common methods, all may be wrong. Does anyone know which, if any is true. I will use a small restaurant with $400K in revenue and $40K in profit as the example.

Method 1) Taxes will be based on the $400K in revenue.

Method 2) Taxes will be based on the $40K in profit.

Method 3) Taxes will be based on the $400K in revenue minus cost of goods sold, minus various deductions including capital improvements thus the taxes may be paid on more than the profit or less than the profit.

Which if any is true?

[Angry Dragon]

1. Taxes are never paid on the gross

A small business could either be a sole proprietorship and the taxes would be paid after the owner filled out the Schedule C
and that would give him/her their profit.

It could be a sub-chapter S corp and they would file other tax forms

both would pay taxes as if they were an individual and not a C corp