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Corporate taxes are indeed levied on net income after expenses. Trading money for capital assets is not considered expense. If you start the year with 0$ in yo
by arcbyte 1y ago
Corporate taxes are indeed levied on net income after expenses. Trading money for capital assets is not considered expense.
If you start the year with 0$ in your bank. After the end of the year you have made $200k in revenue. However you "spent" $200k on software salaries. However, because these are software costs, they must be depreciated over 5 years, so only 20% of that $200k software cost can be applied as depreciation cost which is considered an expense. So your net income for this year is $200k revenue - $20k depreciation expense = $180k. Your 15% tax on this is $27k.
So you made $200k and spent all of it on software, so your bank account is 0, but you owe $27k in taxes.
- ndriscoll 1y agoYou do, however, have $160k worth of software that is generating ~$16k/mo in revenue (or more since you presumably did not make that $200k evenly spread out across year 1 while you were developing the software), so in year 2 you could halt further development, use a loan to get through the 2 months it takes to make the money to pay your taxes, and then make $176k profit. Then you pay your taxes on year 2 and walk away with $152k in the bank along with $120k worth of software asset. (Of course an asset that generates $200k/year is actually worth far more than $200k, so in that case 20% depreciation seems even more absurd)
- 8note 1y agothe required thing here of "lay off or fire all the developers" isnt a great result though
- Dylan16807 1y ago> You do, however, have $160k worth of software That is a huge assumption that is probably not true. > in year 2 you could halt further development, use a loan to get through the 2 months it takes to make the money to pay your taxes, and then make $176k profit. This is almost certainly not true.
- TZubiri 1y agoThis makes sense though.