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Services in kind is a pretty common business practice. You see this a lot at the SMB level especially outside of the US. Small businesses are cash strapped. So
by Swizec 5mo ago
Services in kind is a pretty common business practice. You see this a lot at the SMB level especially outside of the US.
Small businesses are cash strapped. So you find someone who needs your services and you need their services. Instead of exchanging cash, you exchange invoices and do the work. You build them, say, a $5000 website, they perform, say, $5000 of landscaping.
At big boy levels this is often structured as “strategic partnership”.
The part that makes it not fraud is that both parties do actually do the work.
- skeeter2020 5mo agothe last thing you should do in this scenario is book that as revenue. Of course I would never do this, but you could keep it off the books.
- ebiester 5mo agoIt depends if your goal is to sell the company or evade taxes, of course.
- atomicnumber3 5mo agoThis feels very adjacent to the story about the whole town in debt, and the rich guy leaves a $100 bill on the table, [and so on], in a way that I can't quite put my finger on.
- throwaway667555 5mo agoYou can't put your finger on it because money is merely an accumulator and medium of exchange of economic performance. The performance of services in exchange for other services without money is a perfectly valid economic exchange that can and should be booked to revenue of each of the parties, if actually performed. Loans without any economic performance of services generate circular meaningless cash flows yeah, but that's not the case when services are actually performed. Loans are promises to pay. Business deals are promises to perform services or deliver goods. The difference is easily lost in the details even for accountants and economists.
- copperx 5mo agoThat's a bit jumbled. You can gain clarity one level up the abstraction layer. Money is a note that means a debt is owed.
- throwaway667555 5mo agoWhen comparing promises between businesses to pay versus promises between businesses to perform services, it is irrelevant that fiat currency is a federal reserve note rather than, say, bottle caps. Irrelevant.
- adharmad 5mo agoThe man who saved Pumplesdrop By W. J. Turner
- hirsin 5mo agoNot quite. At least the one I found is some trickle down economics myth. The one op is referencing is more like the dollar is used to pay off the waitstaff, who pay their rent to the landlord, who pay their over due taxes, so that the government can issue a refund to the cafe owner. The dollar ends up back in the hands of the cafe owner, who puts it back down on the table with all the debts paid off.
- joenot443 5mo agoIt's a cool little analogy, one I'd never heard of before https://www.econlib.org/archives/2012/01/an_answer_to_a.html https://www.econlib.org/archives/2012/01/an_answer_to_a.html > True, at the beginning each resident has a $100 liability. But each also has an offsetting financial asset of $100. At the end, they all have neither. So the $100 bill acts as a clearing mechanism
- Aurornis 5mo agoThe key realization is that it increases expenses at an equal rate as the revenue increase. You get $5000 of revenue but spent $5000 on services. You also have to pay taxes on that $5000 like other revenue. So many small businesses will try to just exchange the services more directly in some way, or give steep discounts. (Tip: This doesn’t mean it’s entirely correct for tax/legal/accounting purposes, so don’t do big deals like this without consulting professionals. I’m just saying this is what’s done by some people) > The part that makes it not fraud is that both parties do actually do the work. The cheap criticisms of these deals always miss this part: something of value is traded for the dollars by both parties. Companies can’t simply circulate dollars between themselves.
- ahtihn 5mo ago> You also have to pay taxes on that $5000 like other revenue. Businesses do not pay taxes on revenue, they pay taxes on profit. Other taxes may be applicable though (such as VAT or sales taxes).
- lotsofpulp 5mo agoThere are jurisdictions in the US where businesses owe tax on revenue. https://en.wikipedia.org/wiki/Gross_receipts_tax https://en.wikipedia.org/wiki/Gross_receipts_tax https://en.wikipedia.org/wiki/Business_and_occupation_tax https://en.wikipedia.org/wiki/Business_and_occupation_tax
- bombcar 5mo agoIf I spent $5k as a business to realize $5k in revenue the tax is zero (ignoring as you say sales VAT, etc) The problem comes when the $5k you “traded” also didn’t cover the actual expense to provide the $5k you “earned” - now you have an actual loss even if cash didn’t flow.
- gizmo686 5mo agoI could imagine somewhere trying to make that the rule, but I have a hard time imagining that rule being enforceable. At least for US federal taxes, losses do not need to be tied to revenue. As long as they occur in the same tax year, you can deduct. You can also carryover losses to future years, or pass them through to personal income deductions; but the rules there get more complicated.
- bryanlarsen 5mo ago> The part that makes it not fraud is that both parties do actually do the work. It's far more nuanced than that. If you do the work but undervalue it, it's likely tax fraud. If you do the work but overvalue it, it's likely investor fraud. Even if you fairly value the work it still might be investor fraud. The vendor may have been chosen not by merit, but by its willingness to accept an exchange of services. Saying you have $X in revenue implies you won that revenue by merit.
- retr0rocket 5mo ago[dead]
- scarby2 5mo agoThis isn't a good take. > If you do the work but undervalue it, it's likely tax fraud. A company can value it's services as it chooses. If the work is performed for $1 or $5000 the government doesn't get a say in that. > you do the work but overvalue it, it's likely investor fraud. Quite possibly. Assuming this was done with the intention of misrepresenting your revenue and gaining investment. >The vendor may have been chosen not by merit, but by its willingness to accept an exchange of services. Saying you have $X in revenue implies you won that revenue by merit. Vendors are chosen all the time because of their willingness to accept specific payment terms and a whole bunch of non-merit pipelines via family, via golf course deals etc.
- bloppe 5mo ago> If the work is performed for $1 or $5000 the government doesn't get a say in that What if you're getting paid in landscaping?
- scarby2 5mo agoOn a corporate level it doesn't really matter as you're only taxed on your profits/losses. If we do a service swap ultimately it's just adding a revenue item with a matching loss, and these are infact quantified. As an individual interestingly it does matter because services received for free are considered taxable income (but businesses are not taxed on their income).
- emsign 5mo ago> The part that makes it not > fraud is that both parties > do actually do the work. Do they though?
- Fordec 5mo agoDoesn't feel very far off from the money circularly trading hands between Nvidia, Oracle, OpenAI etc.
- jona-f 5mo agoYeah, just a few hundred billion dollars, basically the same...
- kjkjadksj 5mo agoHow do employees get paid here?
- oliver236 5mo agoand you dont need to pay taxes? how does that work
- osullip 5mo agoIn Australia these kind of deals are treated like income. https://www.ato.gov.au/businesses-and-organisations/gst-excise-and-indirect-taxes/gst/in-detail/rules-for-specific-transactions/barter-and-trade-exchanges https://www.ato.gov.au/businesses-and-organisations/gst-exci... I am sure people avoid the tax element this way, but it's not a sustainable way to go. Let's say I do a website for $5,000 (putting aside that this a dead industry, and my career for the past 20 years) and the landscaper comes to do the work at my house. If he cuts a powerline, falls down a hole or chops off his hand, we have a big insurance problem. No paperwork, no contract. I have had friends who did their side of the contra deal and never got the other part of the bargain fulfilled. Things like 'I'll paint your house if you can help fix up this old car of mine.' I have turned down these deals in the past. Same as someone asking me to work for free for 'exposure'. I am not having a go at the comment above as I think the point is valid - small business doing this is fraud, big business do it and it's fine. Just my advice to anyone thinking it might work for them. Send the invoice, do the work, get paid in money.
- deleted 5mo ago[deleted]
- RobotToaster 5mo agoI think the fact that it's treated as income is the point. My company builds your company a website, and "charge" $1,000,000 for it. Your company mows my company's lawn and "charge" $1,000,000 for it. Both companies now have $1,000,000 in revenue from this transaction.
- osullip 5mo agoYeah, I agree. If all transactions are reported and treated like a sale. I just have personal experience where the person offering from one side often wants to avoid the tax. In Australia we have 10% GST/VAT. Pay someone and there is 30% payrol tax (even as a sole trader). Then 12% mandatory pension contribution. So the $5000 website/landscaping turns into 3k cash in hand. Enticing to avoid this if you can, but I am risk adverse - clients pay me off the back of this. It balances the risk appetite of a business owner who could cut corners, with me sayng not to. If they do, at least I made the risk clear. But your point is valid and correct. There is nothing wrong with contra deals where it's booked properly.
- TZubiri 5mo agoAnd the part that would make it fraud (in some contexts, especially publicly traded and international corp struturing for tax purposes) would be overvaluing the services.
- throwaway613746 5mo ago[dead]
- glitchc 5mo agoTax laws may vary by jurisdiction. Often the in-kind contributions appear on a different line item from income on the balance sheet and usually go into a different box on the tax form.
- BobbyTables2 5mo agoWouldn’t they still pay taxes on the trade? Yeah, they’re getting useful things but they aren’t making money.