4 ms·

These days, being profitable is considered harmful. More profits = more taxes. Getting virtual “profits” into stock appreciation and structuring revenues to pay

These days, being profitable is considered harmful. More profits = more taxes. Getting virtual “profits” into stock appreciation and structuring revenues to pay nearly zero tax is the name of the game today, and only big corporations can afford it. It is small and medium businesses that pick the bill.

asdff 8y ago
Uber isn't rolling profit back into the company like Amazon or others do, they are literally loosing money on every ride. There's no profit to hide from the taxman.
- gniv 8y ago
  > Uber isn't rolling profit back into the company like Amazon They kind of are. It’s just a matter of timing. They are rolling future profits, bankrolled by VC.
  - adjkant 8y ago
    And betting those profits come in the process. Huge difference.
- TazeTSchnitzel 8y ago
  Right. Amazon is and has been accumulating a massive vertically-integrated empire of physical infrastructure they actually own or lease. Uber is accumulating… uh. Microservices? Negative goodwill?
  - mattmanser 8y ago
    Markets, it's acquiring markets. I'm no Uber fan, but come on, they're moving into more and more cities world-wide, often without competition save the local taxi firms.
    - matt4077 8y ago
      Except it's not acquiring them so much as renting them, paying each month for the privilege to hold on to the marketshare necessary to also lose money in the next month.
    - TazeTSchnitzel 8y ago
      It's achieving temporary local marketshare subsidised by massive losses. The moment Uber charges prices it can actually profit from, its “markets” will vanish.
    - discreteevent 8y ago
      Amazon buys a warehouse and then shortly after turns a profit on it which they use to buy another warehouse. Uber buys users and then shortly after borrows more money to buy other users.
austenallred 8y ago
It’s not about taxes. If you don’t have a way to reinvest your cash that means you’re out of ideas and are unable to grow.
- reactspa 7y ago
  Austen, I had a question about this comment from you: https://news.ycombinator.com/item?id=16850969 https://news.ycombinator.com/item?id=16850969 Were these students allowed to look up syntax (e.g. Javascript syntax) rules from a reference manual or were they expected to do the FizzBuzz coding challenge entirely from memory? Because I don't think I can code anything without access to manpages.
tuna-piano 8y ago
Same reason I requested $0 salary this year... Seriously, this argument doesn't make sense to me? How can them spending more money help them make more because of taxes?
- atemerev 8y ago
  If you owned enough assets that could be used as a collateral, yes, you could request $1 salary. Many CEOs, Steve Jobs in particular, used to do that. He already had enough cash for day-to-day expenses (like buying a new Mercedes every 6 months); more significant expenses were financed... differently. You should be already rich and structure your capital properly for this to work.
- conanbatt 8y ago
  It would be better for you to collect stock on a company like google at 0$ salary, and just pay long term capital gains when you sell than salary. Makes a huge difference long term, as one is filled with payroll taxes and high rates, and the other is 15%.
  - what_ever 8y ago
    That doesn't make sense. The stock grant will still be considered normal income to you and taxed as the salary is taxed. Any difference in the stock price after it vests and you sell will be either short term or long term capital gain. So if you consider getting all salary in cash and then buying GOOG (or any other stock) with it, you come off only a month or two late on the period for which you are holding the stock. And for that, you lose out on the diversity of the stock. This also assumes that your GOOG stock starts vesting immediately and there is no cliff. Otherwise, you will be holding the stock for "cliff" period longer if you just get cash salary and buy the stock. Disc: Googler but this comment doesn't have anything specifically to do with Google. Google is just an example here.
    - conanbatt 8y ago
      Of course, you want all your stock gains to fall under long term capital gain. Google already has the market price in, but all startups don't. If you make 200k a year for 10 years, vs get no salary for a startup for 10 years and then its sold out for 2 million dollars, they are completely different tax conditions. Im not an expert or have been through this, but if you sell 2 million dollars at 15% long term rate vs the 35~% + medicare of salary, the difference will be huge.
ip26 8y ago
Don't forget also, it's believed that "being profitable" = "you're done with hypergrowth", at which point the whole band of capital looking for 100x unicorns moves on. Remaining unprofitable is a part of maintaining the illusion that the company has huge upside in the future.
- atemerev 8y ago
  Yes, I suppose this is also correct. I just wanted to reiterate that with modern creative financing, a large company can stay “unprofitable” basically forever and still keep shareholders happy.
  - konschubert 8y ago
    The is only true as long as shareholders believe that the company gets a return on its investments. If they believe it just destroys the money it keeps, they will start demanding a payout.
ufmace 8y ago
I get that, as odd as it is. But my understanding was that Uber wasn't doing that at all. I haven't heard of them using slightly dubious accounting tricks to pay more money to shareholders while showing no paper profit. I thought their expenses were simply way ahead of their revenues with no clear way to bridge the gap, and the shareholders are losing money and being diluted too.

asdff 8y ago

Uber isn't rolling profit back into the company like Amazon or others do, they are literally loosing money on every ride. There's no profit to hide from the taxman.

gniv 8y ago
> Uber isn't rolling profit back into the company like Amazon They kind of are. It’s just a matter of timing. They are rolling future profits, bankrolled by VC.
- adjkant 8y ago
  And betting those profits come in the process. Huge difference.
TazeTSchnitzel 8y ago
Right. Amazon is and has been accumulating a massive vertically-integrated empire of physical infrastructure they actually own or lease. Uber is accumulating… uh. Microservices? Negative goodwill?
- mattmanser 8y ago
  Markets, it's acquiring markets. I'm no Uber fan, but come on, they're moving into more and more cities world-wide, often without competition save the local taxi firms.
  - matt4077 8y ago
    Except it's not acquiring them so much as renting them, paying each month for the privilege to hold on to the marketshare necessary to also lose money in the next month.
  - TazeTSchnitzel 8y ago
    It's achieving temporary local marketshare subsidised by massive losses. The moment Uber charges prices it can actually profit from, its “markets” will vanish.
  - discreteevent 8y ago
    Amazon buys a warehouse and then shortly after turns a profit on it which they use to buy another warehouse. Uber buys users and then shortly after borrows more money to buy other users.

austenallred 8y ago

It’s not about taxes. If you don’t have a way to reinvest your cash that means you’re out of ideas and are unable to grow.

reactspa 7y ago
Austen, I had a question about this comment from you: https://news.ycombinator.com/item?id=16850969 https://news.ycombinator.com/item?id=16850969 Were these students allowed to look up syntax (e.g. Javascript syntax) rules from a reference manual or were they expected to do the FizzBuzz coding challenge entirely from memory? Because I don't think I can code anything without access to manpages.

tuna-piano 8y ago

Same reason I requested $0 salary this year... Seriously, this argument doesn't make sense to me? How can them spending more money help them make more because of taxes?

atemerev 8y ago
If you owned enough assets that could be used as a collateral, yes, you could request $1 salary. Many CEOs, Steve Jobs in particular, used to do that. He already had enough cash for day-to-day expenses (like buying a new Mercedes every 6 months); more significant expenses were financed... differently. You should be already rich and structure your capital properly for this to work.
conanbatt 8y ago
It would be better for you to collect stock on a company like google at 0$ salary, and just pay long term capital gains when you sell than salary. Makes a huge difference long term, as one is filled with payroll taxes and high rates, and the other is 15%.
- what_ever 8y ago
  That doesn't make sense. The stock grant will still be considered normal income to you and taxed as the salary is taxed. Any difference in the stock price after it vests and you sell will be either short term or long term capital gain. So if you consider getting all salary in cash and then buying GOOG (or any other stock) with it, you come off only a month or two late on the period for which you are holding the stock. And for that, you lose out on the diversity of the stock. This also assumes that your GOOG stock starts vesting immediately and there is no cliff. Otherwise, you will be holding the stock for "cliff" period longer if you just get cash salary and buy the stock. Disc: Googler but this comment doesn't have anything specifically to do with Google. Google is just an example here.
  - conanbatt 8y ago
    Of course, you want all your stock gains to fall under long term capital gain. Google already has the market price in, but all startups don't. If you make 200k a year for 10 years, vs get no salary for a startup for 10 years and then its sold out for 2 million dollars, they are completely different tax conditions. Im not an expert or have been through this, but if you sell 2 million dollars at 15% long term rate vs the 35~% + medicare of salary, the difference will be huge.

ip26 8y ago

Don't forget also, it's believed that "being profitable" = "you're done with hypergrowth", at which point the whole band of capital looking for 100x unicorns moves on. Remaining unprofitable is a part of maintaining the illusion that the company has huge upside in the future.

atemerev 8y ago
Yes, I suppose this is also correct. I just wanted to reiterate that with modern creative financing, a large company can stay “unprofitable” basically forever and still keep shareholders happy.
- konschubert 8y ago
  The is only true as long as shareholders believe that the company gets a return on its investments. If they believe it just destroys the money it keeps, they will start demanding a payout.

ufmace 8y ago

I get that, as odd as it is. But my understanding was that Uber wasn't doing that at all. I haven't heard of them using slightly dubious accounting tricks to pay more money to shareholders while showing no paper profit. I thought their expenses were simply way ahead of their revenues with no clear way to bridge the gap, and the shareholders are losing money and being diluted too.