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More companies would choose profitable course if the tax regime were different. How (U.S.) taxes work, you are heavily incentivized to build "profitless" compan
by andrewljohnson 10y ago
More companies would choose profitable course if the tax regime were different. How (U.S.) taxes work, you are heavily incentivized to build "profitless" companies and sell them to make profit in the form of capital gains.
If you build a company over 10 years and make zero profit, then sell it for $100M, you pay $15-20M in long-term capital gain taxes.
On the other hand, if you build a company and take $100M profits over 10 years, you pay $35M in corporate income taxes. And it's worse than it seems too, because you pay those taxes as you go, instead of waiting for growth to compound and paying taxes at the end of the cycle.
The VC industry exists basically because of the tax regime, as do a variety of other credit sources. This same tax regime also disadvantages boot-strapped companies, which is sort of a sad side effect if you ask me. If you have the capital to avoid profit-taking, you get richly rewarded for it.
I'd like to see tax reforms to avoid this set up, where small boot-strapped businesses can retain earnings in order to fund their growth, without paying corporate taxes, or having to resort to borrowing so they can spend down their "profits."
- spitfire 10y agoTry Estonia. 0% corporate income tax, 20% on dividends, Something like 30% employment tax on employees within Estonia. So register your business in Estonia, operate outside where you can grow as much as you want without being taxed, then take dividends when you're ready. Estonia has an e-residency program which lets foreign citizens form businesses within Estonia easily.
- xachen 10y agoThis ideology is what gets people in trouble with the tax authorities of their resident country... talk to an accountant and watch them laugh you out the door.
- spitfire 10y agoWhy? The company would be formally Estonian. You'd pay your 20% on any dividends to Estonia, then whatever tax your country of residence demands. I'm not advocating tax fraud in any way shape or form. I'm saying Estonia will allow you to setup an Estonian business, and has a business friendly tax structure. It won't help you with your personal taxation when you bring your money back as dividends/salary. But it will help you if you choose to reinvest it in the business.