yes, this definitely should be talked about. Why can't people's income be carried forward like this as well?
If i made a lot of money one year, why can't i claim away taxes from years that i didn't make income (such that my tax bracket is lower)?
There are also a lot of other ways companies get much more favorable tax treatment than people — for one thing just very fundamentally, they are taxed on profits but people are taxed on revenues, with no ability to deduct most major costs like paying rent or healthcare bills below a very high cutoff.
Kind of a tangent here but I can’t help thinking about this discrepancy when I hear about ISAs, and how people should be able to use the funding methods that companies do like selling shares in themselves. You can be a company but without any of the favorable treatment!
It definitely works against you both ways in high COL areas, where salaries are higher in part bc expenses are higher, but deductions are still fixed.
I earned €1600 in 2016 as a student and then €50k in 2017 and 2018 as I started working fulltime. So now I can make a request for 'averaging' my taxes and I now get a some money back.
I have rent and bills to pay regardless of whether I'm making money, that is the definition of making a loss.
That is not a loss. That is an exchange of value; you pay $100 for your heating bill and receive $100 of heating.
A loss is when you have some value, and it disappears, and you have no compensating value. Buying a stock at $100 and selling it at $50 is a transaction in which you have less money at the end than you had at the beginning, and where you also had no compensating value exchange
Normal taxpayers do have rights to do things like carry forward losses in many circumstances. Business do get to be not taxed on expenses, but there are conditions on that. You can tell there are conditions on that because you can't just form an LLC and declare all your expenses to be losses, because you won't meet the conditions for your expenses to be losses. Note that that is the source of the problem, "form an LLC" is something you can totally do very easily, it's the failure for your personal expenses to qualify that is the problem.
While it might be emotionally satisfying to tax businesses on expenses, it's not hard to think about it a bit and realize why letting taxpayers deduct all their expenses, or trying to tax businesses on their expenses even when they didn't make a profit, are both not great ideas. (Think about the incentives created. Taxpayers don't need any more incentives to spend all their money on "expenses" as it is, if you've seen the credit card debt statistics.)
A person who works for 1 year for $100 income, then stops working the 2nd year (and live off their income from the 1st year), must pay their taxes at the $100 rate. If they are allowed the same 'carry forward' as a corp, they should pay at the tax rate of $50 for both years, rather than at $100 for the first year, and $0 at the 2nd year. And yet, this isn't allowed for a person. Of course, you could claim that the gov't can't tell that the first $100 is supposed to be 'averaged out' in the future. So would the situation be any different if you lived off savings for the first year, and replenished them in the 2nd year? I don't think this is any different.
Unless of course the company manufacturing the widgets (A) sells them to a wholly owned subsidiary (B) for a loss...then A can take the deduction.
Are you an accountant/CPA or attorney?
In lieu of penciling you a tax treatise, you may Google “wholly owned subsidiary tax strategies“. While there are no shortage of tax benefits, inevitably one of the elementary examples you find towards the top will be segregation of manufacturing and sales entities. Unfortunately you likely will not find much on more nuanced situations for example Wholly owned IC-Discs or LOB for wholly owned foreign entities (in many instances those situations can result in 0% US withholding and tax rates)
If most people feeling their way through this problem got their way, they'd simply destroy businesses entirely. They wouldn't necessarily mean to, and only a handful of people would actually appreciate that as a result, with even fewer of those would appreciate it after ten years of experiencing it, but it would be the result.
This is a thing that has happened, and can be studied in history, and is actually happening in the world right now; countries have destroyed their entire business base for good, feel-worthy reasons. Generally speaking, most people have not liked the results. It is not a thing that is beyond the pale, or impossible to happen, or can't happen here, so it's worth encouraging people to be more careful than just feeling.
(This is more opinion than the above, but I don't really believe in the existence of "businesses that aren't taxed", because the business is non-trivially responsible for all of the income tax their employees generate, and directly pay Social Security, health care taxes, sales tax on all the things they buy, and so on. It isn't really the case that there are companies that reach the end of their fiscal year and not a single dollar was "paid in taxes". All it is is that they aren't necessarily paying income taxes, one particular tax, in a field full of lots and lots of taxes. The idea that "companies aren't being taxed" is a lot of rhetoric, which isn't intrinsically a problem, but it can be very misleading and lead to emotions not well-calibrated with reality. By this standard, there's actually a lot of Americans who "don't pay taxes" too, which really makes it all seem a great deal less unfair, and even pay negative taxes, but they still pay various taxes even so, because income is only one taxation element.)
It pits everyone against each other to make sure someone else gives more money to the same entity
Fascinating
A corporation has the same legal rights as a person, but a person has to pay more for these rights. It's unfair imho.
Personal expenses are not.
People end up paying all taxes anyway, just sometimes one or two steps removed from the legal entity/TIN who files the returns.
2. Those expenses are in the furtherance of generating profits rather than for personal consumption are we really going to give people write offs for their Apple watches and $6 latte’s?
- I can deduct the rent for my work space. In fact, theoretically in Japanese law I can even rent an entire building and offer myself the ability to rent living space for about $150 per month, with the company eating the rest as a loss. Probably you can do something similar in other countries (although I couldn't actually do it... because in order to rent a place I need a company and in order to form a company I need an address... so... well, it didn't quite work out).
- Internet, some of my utilities, etc, etc are expenses. Some furniture as well. Some of it has to be depreciated, though, so I don't get the benefit immediately.
- I can set my salary to anything I want. If it is beneficial for the company to make a profit and for me to make peanuts, then it's fine. If the opposite is beneficial, then it's fine.
- A fair number of expenses can be deducted by having a life insurance plan for employees, etc, etc.
On the downside:
- I have to submit all my accounts using dual entry accounting. The government gets stroppy if I make a mistake because they expect me to be a corporation.
- I have to submit year end accounting. Seriously, I have no time for this and employ a wonderful tax accountant to do this for me. My tax accountant saves me money, but getting a good one is like getting a good car mechanic -- it's hit or miss and can be very expensive if you choose the wrong person.
- I have to do the payroll, calculate withholding tax, pay fees and employment taxes. I have to do this every month and if I'm late I get a really big fine. Luckily my wife does this (seriously, I would never do this without my wife doing all the heavy lifting)
- I have stupid amounts of bank fees because I have to transfer money between 3 different banks just to pay myself. We actually use a sneaker net in one phase: I literally withdraw our payroll from the ATM and deposit in another ATM just to save $20 in transfer fees. Of course, I have to document all of this so the government knows I'm not fiddling anything.
In the end, it's an absolute PITA. I don't really recommend it. I think I save a little money this way over when I was being paid salary. It's really hard to tell, though. However, if you factor in all the work that I need to do, I think I'm being paid about $2 an hour for that effort. Or I should say my wife is. If I didn't have her, it would not be worth it at all.
Couldn’t you get the building first, register as a corporation, then subsidize all following months through the corporation?
What I could do is rent a building with the corporation now and move the corporation. The problem is that you have to reincorporate the company at the new address (which would cost me about $3K). Japan is the land of bureaucracy after all! (Edit: I will likely do this if we decide to move since I'll have to pay that money anyway).
The tax break is really to accommodate companies that build a new factory and then build housing for the factory (or a house next to the factory for the owner). It's not really intended to be used the way I want to use it (to literally live in the work space).
Let's say you run a small software company, which is a high margin business. You have $1,050,000 in revenue this year, and $500,000 in expenses, so you make $550,000.
You should be taxed on the $50,000 and the $550,000, not on the $1,050,000. Otherwise, if business expenses were not deductible, low margin and capital intensive businesses would be punished severely. We would have decreased investment in the economy and everyone would suffer for it.
If individuals could deduct their expenses, it would encourage people to spend every penny they make. The mortgage interest deduction is one example where this nudge becomes apparent (albeit real estate has merit as an investment, not just consumption). We already have a low enough savings rate as it is.
Let’s say you make $100,000 a year as a school teacher in SF, and pay $7K a month for a three bedroom house for your family. That’s $84K just for housing. Food clearly uses up more than the rest.
If people and corporations were taxed the same, you could carry over the loss to a future year where your spouse cashed out some stock (or you got a job that paid a living wage).
Alternatively, we could pay everyone a fair wage, and stop subsidizing zero margin businesses that can’t afford the labor costs (which means things like gas would cost a bit more).
I’m for the latter. People have to work in these zero margin places, and their employers should figure out how to make more of a profit (and pay better), or go under.
Why should my taxes subsidize petroleum distributors, Walmart, Amazon, etc?
If the argument is to say "income is income", then "expenses are expenses" should apply too.
Edit: typo
this is exactly it. Rental costs are deducted as expenses for a corporation, but the same rental expense cannot be deducted from income. Arguably, the cost of staying alive for a person is an expense for making the income!
To make it catagorized would be too complex though - i would propose that personal income should be average-able across that person's lifetime. I.e., if i made $1000000 in one year, i should be able to spread the income from when I first started working (and paying taxes), so that my average income per year is the same number. Then you back pay all the "missing" taxes from those years, rather than suddenly jump to the $1,000,000 tax bracket and the gov't taking 45% from you in one go.
Otherwise, you end up effectively amending N returns (possibly opening them back up for examination), needing to calculate what taxes would have been due under the then-extant tax brackets and laws, possibly needing to make inflation adjustments for figures that are decades removed from the tax years in question, realistically needing to pay interest on the taxes that you didn't pay in 1972 but are now claiming are part of your 1972 income because you sold a company in 2019, and everyone would have incentive to file a tax return showing earned income from age 1. (Maybe I arrange for my child to have a job posing for photographs and being paid $20 just to get their income tax filing clock started and being able to income average all the way back to that year instead of only to age 17, 19, or 21.) Forward-only averaging avoids (or substantially avoids) those issues.
Young people would have lower rates while they’re establishing themselves, people with windfalls would end up paying rates in line with their annual compensation (instead of just maxing out the brackets with a big percentage of their income).
Also, people with sustained high income would be taxed at a much higher rate than upwardly mobile members of the middle class.
Similarly, low income people with intermittent income would have a much better chance at building their savings.
Finally, it defeats all sorts of timing strategies, so people could make major financial decisions without first hiring a cpa.
Downsides: results in a 3x income tax charge if an income earner dies suddenly (assuming you want to settle their estate in less than 5+ years). Acts as a loan from the feds to the taxpayer, resulting in income taxes due after you stop working (perhaps you became disabled or got fired [or die, as above]), and results in deferral of income tax receipts to the government during the transition.
Overall, I really like it.
It is true that there are some tax deductions that are abused. However, the effect of encouraging investment by businesses is much more important.
>If you happen to be the owner of a corp you can also use those things to your individual benefit.
This could be considered an abuse. However, the benefit of encouraging investment by businesses far outweighs the negative of this abuse. We tend to focus our attention on a few big individuals who cheat, and this excessive focus throws off our moral intuitions. Heck, the gas station owner might have deducted the cost of buying a toolbox needed at the workplace, and then borrowed a wrench from that toolbox to go home and fix his plumbing. That would be fine with me, to the extent that all the damn tax paperwork stops being worth keeping track of.
That's my point and what I was extrapolating from your high-level comment. If you're going to give an example, it's good to talk about things the gas station and software company do to reduce that income to, or below, zero. Things that can provide direct, positive, net gain impact on ownership of the corp. However, those same things are not available to employees of the corp.
To me, the rules should be the same for _any_ taxable entity.
Theoretically, this is appealing - practically, I see a lot of problems
That's the first step in democracy, no? Engagement?
And I'm not saying that there aren't changes that could and should be made. Just that this particular article doesn't have the feel of a fair debate aiming to inform people, but more of an outrage-inducing propaganda.
it is all part and parcel with an upcoming election. get your direction from the PAC you deny feeds you stuff, write an article with enough truth in it to pass muster but leaving out enough to make a "rational" decision. Thereby upsetting people by appealing to jealousy, envy, and such, by playing on their morals. After all everyone is for justice, protecting children, the environment, and fairness, aren't they?
tripe like this doesn't belong on HN but with the election season spinning up we will get flooded with both direct and indirect stories that are politically driven.
Intellectually void "everyone is corrupt why cant the sheeple see" tripe is best saved for Reddit.
Out of all the rich people we could talk about, Bezos is actually one of the ones I have the least problem with. Bezos has a lot of money, but he doesn't have tens of billions of dollars of "money". His net worth is mostly tied up in Amazon ownership, and if he tried to liquidate more than a small fraction of it then it'd suddenly be worth much less, both because of increased supply, and because Amazon's value is very tied up in his ability to drive the company. Maybe we could talk about problems with a system that allow Amazon to be worth as much as it is, but for the founder of a company to be worth a lot because they built a big company, that doesn't seem like a problem to me.
Interesting discussion to be had, for sure, but not what the article is really about.
"Amazon doesn’t pay taxes, but I pay taxes" is a very good sound byte from this, even if the reasons why that's the case are obviously more complicated.
But let me be honest. I wouldn't read that story. I'm not a tax policy wonk, nor am I qualified to opine on the legislative process except to express exasperation at the gridlock. I am however qualified to vote for candidates who are and that first requires awareness of the issues, a topic orthogonal to a precise understanding of the solutions, just like I need a doctor to tell me what to do about my infection after the pain has brought attention to it, not explain the intricate details of how assays work or how antibiotics disrupt bacterial functions.
Which makes it so easy for the NYT to manipulate you into jealous frenzy.
A lot of people see an outrageous headline and too few ask "what's the other side of the story?" The media knows this and can use it to direct your ire at any of their competitors because it's so effective
"Though both parties have sought to lower the top corporate tax rate in the last decade — President Barack Obama proposed lowering it from 35 percent to 28 percent — Republicans in 2017 pushed it down to 21 percent, in addition to expanding some generous tax breaks. The new law allowed immediate expensing of capital expenditures, for example, in order to goose investment. That was one of the primary reasons that more corporations paid no federal taxes, according to the report.
Mr. Trump and his Republican allies argued that the tax changes would stimulate investment and economic growth. That has happened, though not by as much as they predicted."
There's no debate here, the article was written by one person. It juxtaposes several facts (changes in tax law over the last 10 years, a group of profitable corporations with an effective corporate tax rate of 0 (or negative), poll results, factory closings, and a number of statements by presidential contenders) and, for context, adds a handful of statements from voters and minor activists to give the reader a sense of of how voters in Ohio are viewing these changes.
It's full of charts and dates and numbers. While the title is a little provocative, I find the body text to be informative and interesting, and feel the temperature is kept relatively low given the extremely contentious subject matter.
I don't think it can be considered fairly informative if it doesn't cover how we got to those values. From reading this article, one could still ask if a tax rate is at 21%, how does that mean a profitable company doesn't pay any taxes?
If they went through what Amazon and Goodyear and GM and Duke Energy all did then they would just be rehashing the report that they conveniently linked.
The only thing worse than a fool is an engaged fool.
First educate the people, then crank up the engagement. Doing it in the opposite order is a recipe for disaster.
No one is smart enough to make good decisions while uninformed.
I (hesitantly) disagree. That specific tax policy change is a tree in a vast forest. It happens to be relevant here, but without it... It's not like Amazon, Google, apple, etc would have paid anywhere near the simple tax rate had that legislation not been enacted. Amazon had a different loophole/strategy in 2016 and will have another one for whenever the 2017 one expires whatnot.
Ultimately, corporate income tax has been broken for over 50 years, and it's been brought ken internationally, not just in the US.
...broken in the sense that the "rate" can be 35%, 23% or whatever and the total tax raised in an economy some number unrelated to that.
Reporting the way you suggest implies that in 2016 things were different, or that canceling that policy will yield a meaningfully different result. That's not the case.
Then it should be discussed. Along with the policies already mentioned in the article and it's disingenuous not to do so. How can we expect to make informed decisions if we selectively choose what information to expose or hide for discussion?
Do we have any more information on this line item? I'm in a position where over 1/2 of my income is via RSU grants from my employer. If those are deductible from corporate taxes, that seems to make sense since they are treated as regular income to the recipients, just like salaries (other payroll taxes, etc. are another story). I know there are other forms of equity-based compensation as well. I'm curious to see how these things work.
Republicans and Democrats have let that one go; blaming political parties is a straw-man argument. They expect to utter the words and hope you believe it and not fight what they're doing.
In 2008 after the crash the retail industry switched to hiring part-time jobs only; Wal-mart, Meijer, Kroger, almost everyone and a lot of that was due to pricing pressure from online retail namely E-bay and to a larger extent Amazon. People began working 3 or 4 unstable part time jobs to piece together 60+hr weeks in order to make ends meet and still living in destitution (not having savings for a car or house repair). Many turned to drugs and alcohol to deal with the trauma of being in a sitaution where that looked to be a permanent state of affairs. Today, Wal-mart has stopped drug testing new hires, they've implimented a drug rehab program for new hires because they drug test 100 people and literally 99 fail. Other retailers and employers are doing the same.
Any company that views it's customers as the product ultimately is looking to do what anyone does with a product once they are done with it; throw it into the garbage. CNBC is filling your head with garbage and turning you into garbage just like Amazon and the retail industry did to those retail workers I just mentioned; now they get to clean up their mess. Those people get to lose a good 15-20 years of productive live due to this. You have literally nothing to gain by listening to them whatsoever; take a news literacy course and invest a little bit of money on real journalism.
You're thinking of an antitrust violation, not racketeering. The Sherman Antitrust Act prohibits any "attempt to monopolize" which includes predatory pricing. Racketeering is running a criminal organization for-profit (a Ponzi scheme, dealing dreams, illegal gambling, loan sharks, prostitution, etc.).
If amazon believes they need to spend money on R&D then that R&D is a cost of doing business, if its not turning a profit with that R&D spending then the business is not sustainable by definition.
Amazon was not doing R&D for shits and giggles. Just because the time horizon was long doesn't mean it wasn't any less of a requirement for their success. Amazon would not be in the same place it is today if not for that expenditure so claiming it wasn't a "cost" is just disingenuous.
Why? If the revenue perfectly matches the expenses (including R&D), it won't turn a profit, but it can be sustained indefinitely.
According to CNBC, “Amazon's low tax bill mainly stemmed from the Republican tax cuts of 2017, carryforward losses from years when the company was not profitable, tax credits for massive investments in R&D and stock-based employee compensation.” https://www.cnbc.com/amp/2019/04/03/why-amazon-paid-no-feder...
These are the actual things we should be talking about.