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HAPPY BIRTHDAY, BEN

January 17, 2006

Ben Franklin turns 300 today. Were he alive now, he would need to know his tax pro far too well.

Ben had a very successful printing business. He operated it as a sole proprietorship, which would have meant a schedule C and Schedule SE, with the 15.3% self-employment tax on the first $90,000 in today's income (about $4,230 in 1776 dollars); a top marginal U.S. rate of 35%; a Pennsylvania top rate of 3.07%; and a 4.4625 Philadelphia City Tax.

Today he might instead operate as an S corporation, with about the same results, but with some room to play games with his self-employment and FICA taxes.

Or he could operate as a C corporation, with a top rate of 35%, a Pennsylvania rate of 9.99% and additional federal tax of 15% on distributions, in addition to state and city income taxes at the regular rate. This would be offset somewhat by some tax-free fringes and opportunities to spend time manipulating income between the C corporation and his personal return, in lieu of, say, flying kites.

Because printing generates "Qualified Production Activities Income," he would have his accountants busy trying to allocate expenses to "non-qualifying income" to maximize his Section 199 deduction. He would be aghast that the deduction doesn't apply to revenue generated by the online version of his publications.

A federal estate tax of up to 46% and a Pennsylvania inheritance tax of up to 15% would apply at his death.

With extended stays in England and France, he would get to know the intracacies of the U.S.-U.K. and U.S. - France tax treaties. He would take advantage of the earned-income exclusion for part of his overseas income, but he would remain subject to U.S. taxes, and to some degree U.K and French taxes.

Of course, as a critical figure in the American Revolution and the drafting of the Constitution, not to mention his successful concurrent careers in business and science, he did a lot of stuff that was harder than taxes, even today's taxes. Still, he would have been appalled at the amount of his energy that would be diverted from his inventions and civic involvement to his tax compliance and planning.

Fortunately, he would have been able to keep his perspective:

"Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes."

And he would no doubt be having a lot of fun, too.

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