4 ms·

You pay taxes on capital gains. Suppose that Epic made P income from Paragon and I income from everything else. They are taxed at T. So if they return P to c

by tyrust 9y ago

You pay taxes on capital gains. Suppose that Epic made P income from Paragon and I income from everything else. They are taxed at T. So if they return P to customers, that's a loss. So they will pay (I - P) * T in taxes and end up with (I - P) * (1 - T). Suppose they kept P, that's gain. So they will pay (I + P) * T in taxes and end up with (I + P) * (1 - T). So even though they pay less in taxes ((I - P) * T < (I + P) * T), they will end up with less money ((I - P) * (1 - T) < (I + P) * (1 - T)).

mbesto 9y ago
Whoa, even I couldn't follow this :) Basically, what it means is the following: Year 1 - I spent $10M on Paragon (let's pretend I've made a single dollar from it). I therefore have negative -$10M in profit, so I pay zero taxes. Year 2 - I shut Paragon down. I still have $10M in losses from Paragon. Fortnite does $30M in Revenue and it cost me $20M to build Fortnite in Year 2. Theoretically I profited $10M in year 2 and I'd have to pay ~30% (thats not the real number, so don't correct me) of that in taxes, so I really only get to keep $7M of that to reinvest. But I get to carry my loss forward from Year 1 onwards. So in theory I get to keep more of my profit due to a smaller tax burden. Generally speaking this is usually done over 5 years. So I'd take $10M and amortize it $2M ever year. Meaning Year 2, instead of paying 30% of $10M, I would pay 30% of 8M, so $2.4M versus $3M. It's obviously way more complicated than this, but this is the gist.
- tyrust 9y ago
  You're describing the situation assuming that Epic has already taken the loss. I'm describing the tradeoff between intentionally taking the loss (i.e. allowing returns of the game) vs keeping the profits they've made.
dorgo 9y ago
I don't get your math, but (I+P) - (I-P) = 2P. It seems wrong that that the difference between the two scenarios is 2P.

by tyrust 9y ago

mbesto 9y ago

Whoa, even I couldn't follow this :) Basically, what it means is the following: Year 1 - I spent $10M on Paragon (let's pretend I've made a single dollar from it). I therefore have negative -$10M in profit, so I pay zero taxes. Year 2 - I shut Paragon down. I still have $10M in losses from Paragon. Fortnite does $30M in Revenue and it cost me $20M to build Fortnite in Year 2. Theoretically I profited $10M in year 2 and I'd have to pay ~30% (thats not the real number, so don't correct me) of that in taxes, so I really only get to keep $7M of that to reinvest. But I get to carry my loss forward from Year 1 onwards. So in theory I get to keep more of my profit due to a smaller tax burden. Generally speaking this is usually done over 5 years. So I'd take $10M and amortize it $2M ever year. Meaning Year 2, instead of paying 30% of $10M, I would pay 30% of 8M, so $2.4M versus $3M. It's obviously way more complicated than this, but this is the gist.

tyrust 9y ago
You're describing the situation assuming that Epic has already taken the loss. I'm describing the tradeoff between intentionally taking the loss (i.e. allowing returns of the game) vs keeping the profits they've made.

dorgo 9y ago

I don't get your math, but (I+P) - (I-P) = 2P. It seems wrong that that the difference between the two scenarios is 2P.