4 ms·

No, wages, salaries, payroll taxes and contractor expenses, along with most other expenses, are subtracted from gross profit to make net profit, which may under

No, wages, salaries, payroll taxes and contractor expenses, along with most other expenses, are subtracted from gross profit to make net profit, which may undergo further reduction in various charges (depreciation, etc) before being subject to tax, and then various tax credits may be applied that reduce the corporate liability further. Double taxation occurs when a corporation is subject to corporate tax and then pays a dividend, which is after tax, but counts as income to the investor. There are arguments to be made that this is fair or unfair.

wolverine876 4y ago
> Double taxation occurs when a corporation is subject to corporate tax and then pays a dividend, which is after tax, but counts as income to the investor. There are arguments to be made that this is fair or unfair. Even calling it double-taxation seems like BS. Generally, we tax at the point of exchange: income, sales, etc. Money moves around endlessly. It's taxed when the consumer pays the corporation (often twice! sales and income), when the corporation pays the shareholder, when the shareholder dies and gives it to their kids, when the kids buy a house, when the homebuilder pays their contractors, etc. etc. etc.
- projektfu 4y ago
  I don't disagree, but S-corporation profits are only taxed once, regardless of distribution, and C-corporation profits are taxed on the corporate tax bill even if distributed in a dividend to shareholders. It's a little peculiar.
  - varispeed 4y ago
    Still. The corporate tax rate is way lower than personal tax. In my country some workers pay over 50% tax on their income, while corporation they work for pay 10% or less if they have good accountants.
    - nullc 4y ago
      In the US we've historically arranged thing so that the corporate tax rate + long term cap gains rate is approximately equal to the income tax rate. If the combined rates were much greater it would create an incentive against creating c-corps.
      - wolverine876 4y ago
        > If the combined rates were much greater it would create an incentive against creating c-corps. Are you implying that sole proprieterships would be alternatives to C corps? Facebook would be a personal asset of Zuckerberg?
      - varispeed 4y ago
        > If the combined rates were much greater it would create an incentive against creating c-corps. This argument isn't sound. If high tax doesn't create an incentive for creating corporations, then it also doesn't create an incentive for people to work and be productive. Now the taxes are pushed on the workers that have to pick up the corporations tab. It may have worked in the past where corporations had high head count and were not outsourcing, but now governments rather than working to correct that imbalance, they increase workers' taxes. We can see this system is slowly collapsing as your can tax the workers only so much before they feel like slaves and stop working.
        nullc 4y ago
        I am not following your reply. Consider that you face two options for organizing your business activity-- you can operate it as a pass through entity of some kind (s-corp, sole proprietorship, etc) or you can operate it as a c-corp. The c-corp path will result in double taxation, corp tax and LTCG. But the combination of the two is a similar rate to the tax on income (e.g. 21+20% vs 37% top marginal). Cranking the CG or corp tax rate even higher will result in more businesses with less diverse ownership, even if only on the margin, which would result in increased wealth consolidation.
    - orangepurple 4y ago
  - wolverine876 4y ago
    It's the concept of a corporation as a fictional person that is source of the peculiarity. If it's a fictional person, with its own assets, income, and expenses, then it pays taxes. It serves real humans by providing a place they can safely pool their investment. S corps are more extensions of a real human than separate fictional entities.

wolverine876 4y ago

> Double taxation occurs when a corporation is subject to corporate tax and then pays a dividend, which is after tax, but counts as income to the investor. There are arguments to be made that this is fair or unfair. Even calling it double-taxation seems like BS. Generally, we tax at the point of exchange: income, sales, etc. Money moves around endlessly. It's taxed when the consumer pays the corporation (often twice! sales and income), when the corporation pays the shareholder, when the shareholder dies and gives it to their kids, when the kids buy a house, when the homebuilder pays their contractors, etc. etc. etc.

projektfu 4y ago
I don't disagree, but S-corporation profits are only taxed once, regardless of distribution, and C-corporation profits are taxed on the corporate tax bill even if distributed in a dividend to shareholders. It's a little peculiar.
- varispeed 4y ago
  Still. The corporate tax rate is way lower than personal tax. In my country some workers pay over 50% tax on their income, while corporation they work for pay 10% or less if they have good accountants.
  - nullc 4y ago
    In the US we've historically arranged thing so that the corporate tax rate + long term cap gains rate is approximately equal to the income tax rate. If the combined rates were much greater it would create an incentive against creating c-corps.
    - wolverine876 4y ago
      > If the combined rates were much greater it would create an incentive against creating c-corps. Are you implying that sole proprieterships would be alternatives to C corps? Facebook would be a personal asset of Zuckerberg?
    - varispeed 4y ago
      > If the combined rates were much greater it would create an incentive against creating c-corps. This argument isn't sound. If high tax doesn't create an incentive for creating corporations, then it also doesn't create an incentive for people to work and be productive. Now the taxes are pushed on the workers that have to pick up the corporations tab. It may have worked in the past where corporations had high head count and were not outsourcing, but now governments rather than working to correct that imbalance, they increase workers' taxes. We can see this system is slowly collapsing as your can tax the workers only so much before they feel like slaves and stop working.
      - nullc 4y ago
        I am not following your reply. Consider that you face two options for organizing your business activity-- you can operate it as a pass through entity of some kind (s-corp, sole proprietorship, etc) or you can operate it as a c-corp. The c-corp path will result in double taxation, corp tax and LTCG. But the combination of the two is a similar rate to the tax on income (e.g. 21+20% vs 37% top marginal). Cranking the CG or corp tax rate even higher will result in more businesses with less diverse ownership, even if only on the margin, which would result in increased wealth consolidation.
  - orangepurple 4y ago
- wolverine876 4y ago
  It's the concept of a corporation as a fictional person that is source of the peculiarity. If it's a fictional person, with its own assets, income, and expenses, then it pays taxes. It serves real humans by providing a place they can safely pool their investment. S corps are more extensions of a real human than separate fictional entities.