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> 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. That's simply not true. Y
by elil17 5mo ago
> 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.
That's simply not true. You may get a certain amount of leeway, but it has to be reasonable.
- andix 5mo agoNo, it doesn't have to be "reasonable". Its only illegal if it is used to cover up some other illegal thing. For example giving huge discounts below cost only to family members, which is more or less like paying them money without paying taxes for it.
- thih9 5mo agoNote that we’re talking about two companies exchanging services. When two companies undervalue the services that they offer to each other, they pay lower taxes. This is the illegal part.
- tstenner 5mo agoIf the expense is tax deductable, it mostly doesn't matter whether you have $10 earnings vs $10 business expenses or $10K.
- deleted 5mo ago[deleted]
- thih9 5mo agoGood luck explaining that to the IRS.
- gamblor956 5mo agoThe IRS would be fine worth it if taxable income is unchanged. Businesses are taxed on their net income, not get gross.
- thih9 5mo agoYou mean they are fine with the things they won’t notice? Perhaps that is true.
- gamblor956 5mo agoNo, depending on your accounting method the transaction we're discussing may be disregarded, so the net economic position of the taxpayers is no different. As a result the IRS is generally indifferent...so long as you maintain that method of accounting for future similar transactions.
- deleted 5mo ago[deleted]
- Flundstrom2 5mo agoIt might be legal in YOUR jurisdiction, but at least in the jurisdiction I'm in, it is not - AFAIK - legal to neither underwrite or overwrite costs on the sole purpose of avoiding tax or grooming the pig.
- andix 5mo ago> on the sole purpose of avoiding tax or grooming the pig Exactly. But it doesn't have to be used in this way.
- jjav 5mo ago> That's simply not true. You may get a certain amount of leeway, but it has to be reasonable. Where have you seen this? When I was doing consulting I could charge whatever rate I wanted. Usually around $200 but went up to $500 and down to $25 when doing a favor. Same type of work. At the enterprise level this is even more common. Nothing has a fixed price and the same service can be sold at wildly different prices to different customers based on endless variables.
- bryanlarsen 5mo ago> I could charge whatever rate I wanted. Sure, if you're charging cash. If you charge $25 and that's all you get, it's worth $25 by definition; being bad at business is allowed. But if you're charging $25 and you're getting $25 and a favor, that work you're doing is actually worth more than $25 and the IRS expects you to declare the value of that favor as income. If you normally charge $500 but sometimes you charge $25 the IRS might look deeper to see what else you're getting in compensation. You're highly likely to get away without declaring that favor, and there are certainly legal ways to avoid it too -- gifts, training/education, et cetera, but at it's base level it's income.