- Joined
- Jun 1, 2017
It's weird that Phil says he's paying "pass-through business" taxes, but that it's not a business. As far as I can tell, a pass-through business is considered, well... a business. In fact, a shitton of businesses are apparently classified as pass-through businesses. This would most likely be classified a sole proprietorship pass-through business. Pass-through businesses are subject to a number of taxes beyond just the federal income tax for the individual:
- There's a Self-Employment tax, which owners of sole proprietorships and partnerships are subject to on most of their net business income. This totals ~15% on the first ~117k earned annually, and ~3-4% beyond that.
- Pass-through business income can also be subject to the Alternative Minimum Tax (of which more than 2 million income tax returns with pass-through business income were subject to in 2007), which increases the effective tax rate paid by business owners.
- In addition, pass-through businesses pay state and local income taxes. I don't know what the state and local income taxes are for Washington (Daddy DSP says 0%), but according to the chart in the article I link below, the combined marginal tax rate for Washington (for sole proprietorship pass-throughs) is 42.6%. This is the lowest tax rate in the country (#42), shared by a number of other states. However, the combined marginal tax rate for Connecticut would only be 47.8% (#19), and it's nowhere near the highest in the country (California is #1 at 51.9%).
Last edited: