6 ms·

For-profit startups don’t pay taxes while growing either, because they aren’t making any profit during that phase.

• daveguy 2y ago
  Good point. That sounds a lot like fraud.
  • svnt 2y ago
    Not paying taxes while losing money sounds like fraud to you? What do you propose should be taxed, exactly?
    • daveguy 2y ago
      True, non-profits don't pay taxes on any revenue regardless of expense. How do you know they had no profit with all of the deals with major companies and having one of the most popular software services in existence? Non-profits can earn profit, they just don't have to pay taxes on those profits and they can't distribute those profits to stakeholders -- it goes back to the business. They are also a private company, and do not have to report revenue, expenses, or profits. So yeah, I stand by what I said -- it sounds like fraud. And it deserves an audit.
      • blackhawkC17 2y ago
        > How do you know they had no profit with all of the deals with major companies and having one of the most popular software services in existence? By reading their Form 990 filings, which are publicly accessible here: https://projects.propublica.org/nonprofits/organizations/810861541 https://projects.propublica.org/nonprofits/organizations/810....
        • daveguy 2y ago
          To be fair, this is a year and a half out of date (finances ending Dec 2022). The first chatGPT had only just come out at that point. 2023 fiscal report is due by Nov 15, and we won't know until next Nov about 2024. So yeah, an audit is in order, to bring the records up to date before the switch, if nothing else.
    • Spivak 2y ago
      Cash flow. Profit get's taxed at x%, cash flow that was offset with losses/expenses gets taxed at y% < x. Company that does $100Mil of business and makes no money is very different than company that does $10k of business and makes no money.
      • svnt 2y ago
        Your equations do not account for the difference you mention, they only ensure growth will be slower and riskier.
        • Spivak 2y ago
          That's fine, and in exchange we get significantly more tax revenue and close a gaping tax avoidance loophole. If taxing profit was a good proxy for business activity companies would use it when making their pricing tiers. But they don't. They use revenue and headcount because profit can and is gamed. I can't deduct my expenses on my own taxes and the world didn't end.
          • svnt 2y ago
            It’s an interesting point but your argument fails in that you get a standard deduction that probabilistically exceeds the expenses related to your job. Perhaps it would need to be something like x%revenue above $10M, y%revenue above 1B beginning after three years of operation.
• IncreasePosts 2y ago
  Sure. But there are a lot of other tax advantages. For example, at least where I am, non profits don't pay sales tax on purchases, and don't have to pay into unemployment funds. I'm sure there is more, but I'm not super familiar with this world.
  • caeril 2y ago
    Corporations don't generally pay sales tax either, if the bean counters can justify the purchase as COGS. There are plenty of accountants who can play fast and loose with what constitutes COGS.
    • sethaurus 2y ago
      For anyone else unfamiliar with this initialism: > Cost of goods sold (COGS) refers to the direct costs of producing the goods sold by a company. This amount includes the cost of the materials and labor directly used to create the good. It excludes indirect expenses, such as distribution costs and sales force costs.
• deleted 2y ago
  [deleted]
• xxpor 2y ago
  If most of your expenses are software devs, that's not true any more.
  • perfmode 2y ago
    How so?
    • turok2step 2y ago
      Taxpayers can't immediately deduct R&D costs now https://www.law.cornell.edu/uscode/text/26/174 https://www.law.cornell.edu/uscode/text/26/174
    • flutas 2y ago
      In short, section 174[0]. It pushed almost all SWE jobs to be classified as R&D jobs, which changed how taxes are calculated on companies. They have an example at [0], but I'll copy it here. For a $1mm income, $1mm cost of SW dev, with $0 profit previously you paid $0 in tax (your income was offset by your R&D costs). Now it would be about $200k in taxes for 5 years, as you can't claim all of the $1mm that year anymore. [0]: https://blog.pragmaticengineer.com/section-174/ https://blog.pragmaticengineer.com/section-174/
    • the_gorilla 2y ago
      There's tons of taxes on hiring employees that you have to pay even if you're losing money. Payroll taxes, mandatory insurance taxes, unemployment taxes, probably more I just don't remember off the top of my head.
    • nickspag 2y ago
      In an effort to lower the deficit effects of the Trump tax cuts (i.e. increase revenue so they could cut further in other areas), they reclassified software developers salary so that their salaries have to be amortized over multiple years, instead of just a business expense in that year. This is usually done for assets as those things have an intrinsic value that could be sold. In this case, business have to pay taxes on "profit" that they don't have as it immediately went to salaries. There were a lot of small business that were hit extremely hard. They tried to fix it in the recent tax bill but it was killed in the Senate last I checked. You can see more here: https://www.finance.senate.gov/chairmans-news/fact-sheet-on-the-wyden-smith-tax-relief-for-american-workers-and-families-act https://www.finance.senate.gov/chairmans-news/fact-sheet-on-.... Also, software developers in Oil and Gas industries are exempt from this :)
• authorfly 2y ago
  Corporate tax is always only paid on profit and is usually a minor part of the tax draw for the government from corporations of all sizes. The vast majority of taxes paid in developed nations are employee taxes and whatever national+local sales taxes and health/pension equivalent taxes are (indirectly) levied (usually 60-80% of national income). Asset taxes are a bit different. It's true even in the bootstrapped company case: If you earn say $100k and keep $50k after all the employee indirect/direct taxes. Now imagine you spend $40k of that $50k in savings, setting up a business. You spend $30k on another employee, paying $15k of employer and employee taxes, and spend the other $10k on a company to do marketing (who will spend $5k of that on employees and pay $2.5k of tax), and you earn less than $40k in income, by the end of year 1 you have: 1) A loss-making startup which nonetheless is further along then nothing 2) Out of $100k of your original value, $67.5k has already reached the government within 12 months 3) Your time doing the tech side was not compensated but could not (for obvious anti-fraud reasons) be counted as a loss and as you have noted, you don't pay tax when you make a loss, and you don't get any kind of negative rebate (except certain sales tax regimes or schemes). If you are in the US, the above is currently much worse due to the insane way R&D Software spend needs to be spread immediately as a tax burden. So it's really not fair to say a new startup isn't paying taxes. They almost always are. There are very few companies or startups that pay less than 50% of their income to staff, and almost all of those are the unicorns or exceptional monopoly/class leaders. Startups, and founders tend to disproportionately give more of their income and are essentially to that extent re-taxed. Even though you saved the money in order to start a startup, and paid your due employee taxes, you then have to pay employee taxes to use it, etc.
  • mpeg 2y ago
    Is this a US thing? In the UK employee tax is the employee’s to pay, not the company. Even if the company technically transfers it directly to the tax agency it’s not really their money. EDIT: I guess we do have employer tax as national insurance contributions too, always forget about that since I’ve always paid myself under that threshold
    • authorfly 2y ago
      I'm not sure if you mean whether the UK has the same low corporation vs high income/pension/NI contributions income? If so, yes. The UK does have employers NI contributions but that's not what I mean. The point is, if you spent a year to earn a gross £100k, and as you earn it, pay £50k of total tax, and with the remaining £40k/£50k you spend it on an employee at your company in salary and pay then £20k of tax, the government has that year earned £70k from that £100k passing through. You can argue that really "£140k" has passed through, but it's not the case, because you created a new job that wouldn't otherwise have existed had you instead saved that £40k for a house. Either way HMRC gets £70k this year rather than £50k. The wider point I was making is that all companies, even for-profit, pay tax to do just about anything, and companies with much lower sales than costs aren't just paying nothing. They generally have higher costs because they are paying people, and paying their taxes every month. The tax per employee is completely uncorrelated with the financial profit or thereof by the business, so it's a (sensible) misconception that companies that don't make profit like startups don't contribute to the economy. They do, by paying employment taxes. I'm really making the point that you have to account for employee taxes (both employer and employee as you mention) for your costs as a business. That means, even though you already paid those yourself when you carried out the work to gain savings to invest in your business (to spend on an employee), you have to pay again when paying your employee. I.e. Self-funded or businesses launched from previous accrued personal income where you invest your own time as well result in a bad tax situation; whereas an employee earning £100k might pay £50k tax total and save £50k for a house (no VAT), The alternate of investing that £50k in your business by paying someone £40k means you have to pay that employees PAYE, their Employer and Employee NI. So the government gets to re-tax most of that money when you use it to hire someone to build a new business with you, in a way they don't if you use it to buy a house, in terms of practical impact. When you pay yourself as an entrepreneur depends, there's dividends+PAYE in the UK (which requires yes you pay for both your employer and employee tax for yourself) or capital gains(ignoring tax schemes), either way, you do get taxed at some point to bring cash out. The government in other words massively benefits from unprofitable for-profit companies so long as they hire some people, especially if the companies are self-funded. But even if it is investment, it's better to have that money spent on salaries now in new companies than sitting as stock in larger companies that keep cash reserves or use schemes to avoid tax. They get much more tax from people starting even unprofitable new businesses, than from employees who simply save money. It's one of the reasons that since the introduction of income taxes (more or less WW1 in most countries!), you need money to get money in way that you fundamentally did not in the same way back when you could earn $50 from someone and directly use that same $50 to pay someone for the same skills without any loss of value.