What your companies bank account states is not what I care about as tax collector. The profits you make have nothing to do with the equipment you bought earlier to even start the business. Otherwise you could simply: Buy expensive stuff -> even out with profits, buy expensive stuff again, even out with profits and never pay taxes.
All of these factors, and many more play into the "profit" of an operation like Starbucks, so how do you determine what the real true profit of that one cup of coffee is? It is much simpler to simply say "Hey, just hand over x% of profits at the end of the year" with some reasonable guidelines as to how accounting should be done (see stuff like GAP for example) than to sit down and determine what the individual "profit" is for every single individual cup of coffee sold at every single Starbucks location.
>Otherwise you could simply: Buy expensive stuff -> even out with profits, buy expensive stuff again, even out with profits and never pay taxes.
Yep, you could do this. Only problem is, uh, you never make any money. If you're running a hobby or something, that's fine, but most people owning business want to realize some profit...
If course there are still shenanigans you can pull between different tax districts, but someone somewhere needs to realize a profit at some point - otherwise they are running a jobs program and not a business.
>Yep, you could do this. Only problem is, uh, you never make any money. If you're running a hobby or something, that's fine, but most people owning business want to realize some profit...
Debt is technically profit in that sense, as long as you can pay it back.
When you first invest 100k and then sell something for 2$ you don't make a profit for a while. You may be arguing for some other tax but it's ridiculous to argue income tax should be paid until revenue > costs.
>>If you dont make profit on that sale, I have bad news for your business idea.
When doing business you often don't know if you will make profit or not. In the coffee example you don't know how many you are going to sell so it's impossible to "include costs in the cup of coffee" because that depends on how many you are going to sell and that's unknown. Your whole line of reasoning makes 0 sense.
Every unit of coffee you sell should turn a profit. Which in turn should be taxed. Even cigarettes that probably only turn micro cents profit should be taxed by per unit sold. They even are, given their sales are heavily regulated.
No company is giving out "free" products without making a profit just to go even on their initial investment.
>>No company is giving out "free" products without making a profit just to go even on their initial investment.
Profits appears when your revenue exceeds your costs which doesn't happen on the first or second (or sometimes 10000th sale). You are arguing for some completely different tax system which luckily we don't live under.
>> If you do that you can actually calculate the amount of coffees you need to sell to turn a profit and if the business even makes sense in the first place.
You can't calculate "if the business even makes sense in the first place". It's a bureaucrat's dream but it's not how the real world works. You make a bet and and hope it works out. I may or it may not (the usual case with businesses).
Over what timescale? For instance, if the first month I operate my business I have a loss of $50,000 (have to buy initial supplies and equipment, hire employees, etc.), but in the second month sales start taking off and I net $20,000 do I (a) have a total loss of $30,000 and pay no tax or (b) owe taxes on the $20,000 in month two?
This can be extended, e.g. profit and loss can be calculated on a weekly, daily, or even hourly basis. In the extreme case, this is no longer a tax on profit but on revenue (which essentially runs any business that has a smaller margin than the tax rate out of business since every dollar of revenue coming in results in more tax liability than the business actually nets).
Before you say "obviously profit and loss should be calculated in a yearly cadence" I would note that the choice of a year is fairly arbitrary and this taxation scheme would greatly disincentive any sort of capital allocations that would take more than a year to payoff (as a small example, would incentive leasing equipment annually vs. buying outright).