Why do big corporations get to claim losses, but small businesses can't?

Comments

• alvvayson@lemmy.dbzer0.com ⁨3⁩ ⁨months⁩ ago

  Because they manage to attract investment.

  As long as investors are willing to give cash in exchange for equity, a company can operate on that cash and run at a loss.

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  • QuarterSwede@lemmy.world ⁨3⁩ ⁨months⁩ ago

    To clarify further, the IRS cares about the big businesses too and they get audited, at least, yearly by law. Also, small businesses can still operate if they have the capital to do so. The IRS is concerned about ensuring no laundering or otherwise nefarious activities are going on, which is why they get the spotlight when running in the red consistently.

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    • lemmyman@lemmy.world ⁨3⁩ ⁨months⁩ ago

      they get audited, at least, yearly by law

      The IRS doesn’t audit annually, companies hire 3rd party auditors. And it’s not a tax requirement, it’s a public-company requirement.

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• olafurp@lemmy.world ⁨3⁩ ⁨months⁩ ago

  There is nothing preventing business from running without making a profit as long as they pay any expenses or bonds that are due.

  The current tech setup depends on high stock valuations. They issue stock, sell it at a high rate and use that to pay expenses. The sale of stock does not count as net positive in revenue since they are effectively selling a part of their business to investors, making them “owe” their new shareholders equal the amount they gained from them.

  As long as investors are interested and the business is growing it’s possible to keep this going for a long time and never pay taxes since they spent everything they gained.

  If they are not able to pay their expenses they will have to file for bankruptcy like every other business, whether it’s restructuring bankruptcy, transfer of ownership of dissolution.

  So why can’t small businesses do the same? They absolutely can, but the money they get from selling stock is nowhere close. These tech companies are sold sometimes at 20x the revenue where small businesses are likely going to get 20x profit or less.

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  • MonkderVierte@lemmy.ml ⁨3⁩ ⁨months⁩ ago

    Oh, it starts already as cancer?

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    • olafurp@lemmy.world ⁨3⁩ ⁨months⁩ ago

      I think most tech companies are over valued, not gonna lie. In a hypothetical situation where you know all future dividends of the company the value of the share should be the sum of the future dividends discounted by number of years at an interest rate. If the company is never going to pay out dividends then it’s “real value” is zero.

      “Real value” as in it has no value as a commodity like gold or a collectors item. Looking at you Tesla.

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  • Kecessa@sh.itjust.works ⁨3⁩ ⁨months⁩ ago

    And the same thing is true for private businesses, most of the time they’re only private in the sense that the “shares” aren’t listed on the stock market, there’s still a bunch of investors behind the scene that each own a certain % of the company, it’s not just the figurehead that acts like they’re the sole owner (see Twitter with Musk and the documents released recently showing how much money for the purchase came from third parties).

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• FireTower@lemmy.world ⁨3⁩ ⁨months⁩ ago

  Small businesses absolutely can, and should claim any valid expenses. In theory audits are not punishments. They happen to large companies too. But in practice small businesses often don’t have full time accountants keeping their records and some receipts are lost after the cost has been reported.

  Like many compliance regulations bookkeeping has costs that larger business are easier able to bear. Small businesses do get some aid notably a lot of money went out during covid, but big businesses have the people and resources to take advantage of that aid more than a solo proprietor who wasn’t even aware. Although small businesses never seem to get those “to big to fail” bailouts.

  To touch on the hobby point if you run a business 40 hrs a week and lose twice what you make a year the IRS probably won’t mind. But if you’ve got 3 businesses you use to right off expenses (like craft brewing equipment, leather working tools, or art supplies) and you only have ever sold a single belt on Etsy over the span of a year they’ll probably have an issue.

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  • snooggums@midwest.social ⁨3⁩ ⁨months⁩ ago

    But in practice small businesses often don’t have full time accountants keeping their records and some receipts are lost after the cost has been reported.

    Not to mention large businesses can spend more money on lawyers that are able to drag out court cases through delay tactics and are far more likely to get the government to settle.

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• IrateAnteater@sh.itjust.works ⁨3⁩ ⁨months⁩ ago

  I’m not up to speed on how US tax laws work. What does getting deemed a hobby entail?

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  • dhork@lemmy.world ⁨3⁩ ⁨months⁩ ago

    Think of someone who makes small crafts and sells them on some online platform. Someone who does this as a business will keep track of their materials costs, and subtract them from their sales cost, only paying taxes on their actual profit.

    But the IRS will only let you do this if they determine your intent is to make a profit. If they think you are purposely just selling enough to cover your materials, but using most of the materials for yourself, they can tell you that you never had an actual business in the first place, and that all that deducting of expenses never should have happened.

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    • Buttflapper@lemmy.world ⁨3⁩ ⁨months⁩ ago

      Seems like it’s completely subjective, too. I’ve seen many posts on reddit about people being shafted by the IRS and forced to pay back a ton in taxes even though it was a legit effort to run an actual business, simply because they don’t “think” it’s a business

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• GildorInglorion@lemmy.world ⁨3⁩ ⁨months⁩ ago

  The difference may also be how the business is structured. Personal vs a corporation (LLC or otherwise).

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  • lemmyman@lemmy.world ⁨3⁩ ⁨months⁩ ago

    Yes there is a difference, but LLC is a legal concept, not a tax one. The IRS taxes sole proprietors the same whether or not they have an LLC.

    Tax entities include sole proprietorship (default), partnerships, s corps, c corps. Any of those can be LLCs, but they don’t have to.

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    • FireTower@lemmy.world ⁨3⁩ ⁨months⁩ ago

      Yes the main appeal of a LLC is that you aren’t liable if your LLC gets sued. As a sole proprietor if someone slips and falls in your store they can recover damages from you personally. As an LLC they can only get the business’s funds.

      This means that even if awarded damages from a civil case tanks your business your won’t be out of a home and your personal bank accounts are safe (not considering the burden of lossing your source of income).

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• ipkpjersi@lemmy.ml ⁨3⁩ ⁨months⁩ ago

  Because big corporations are better off at paying governments than smaller businesses.

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  • OmegaLemmy@discuss.online ⁨3⁩ ⁨months⁩ ago

    Governments aren’t the ones paying big tech, they protect monopolies if that’s what you mean. Even then that’s dubious with what’s happening recently in europe and America

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    • ipkpjersi@lemmy.ml ⁨3⁩ ⁨months⁩ ago

      No, I’m saying large corporations pay off governments, which is absolutely true.

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• skullgiver@popplesburger.hilciferous.nl ⁨3⁩ ⁨months⁩ ago

  [deleted]

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  • False@lemmy.world ⁨3⁩ ⁨months⁩ ago

    Amazon pays taxes. Less than what they should? Yes but they are paying cnbc.com/…/amazon-had-to-pay-federal-income-taxes…

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• deafboy@lemmy.world ⁨3⁩ ⁨months⁩ ago

  IRS will audit you, and could deem you a hobby

  Are there any negative consequences? I’d prefer to be downgraded to a hobbyist. Instead, the government has increased my taxes to around 70% of my yearly revenue. Social democracy, fuck yeah!

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  • lemmyman@lemmy.world ⁨3⁩ ⁨months⁩ ago

    Profitability is just a proxy for whether someone is legitimately running a business, or just trying to save money on their hobby. Businesses can deduct expenses, hobbies cannot.

    So if you are running an etsy store or an engineering company and buy a 3d printer to make parts, the cost of that 3d printer is subtracted from revenue for tax purposes. If your “business” is actually a hobby, it’s not legally a business expense and therefore it’s not deductible

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    • deafboy@lemmy.world ⁨3⁩ ⁨months⁩ ago

      3d printer is subtracted from revenue for tax purposes

      That makes sense. Since my profits always oscillated around zero, claiming any expenses had no practical effect.

      legitimately running a business, or just trying to save money on their hobby

      That’s actually how it started. We’ve installed linux on some old desktop machine with my classmate back in school, set up some services like webhosting, mail, jabber, and started to give access to people for free. No guarantees, no pressure. As we finished school, trying to turn it into a business was a logical next step. It never went big, but we just kept the thing around, bought newer hardware, moved it to a proper housing, did basic maintenance, and years later, here I am owing to the government thanks to my highschool hobby.

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    • snooggums@midwest.social ⁨3⁩ ⁨months⁩ ago

      This is a great explanation for why business deductions are stupid in the first place. Why does being profitable justify being even more profitable by paying fewer taxes?

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  • cikano@lemmy.world ⁨3⁩ ⁨months⁩ ago

    What country is this?

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  • SteveFromMySpace@lemmy.blahaj.zone ⁨3⁩ ⁨months⁩ ago

    70%? The fuck? What do you do for a living/do you have an accountant? That doesn’t make any damn sense. Like truly I do not understand how this is possible

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    • deafboy@lemmy.world ⁨3⁩ ⁨months⁩ ago

      Well, I fell into a bracket that’s taxed (it’s not officially called a tax, but that’s what it is) by a certain fixed minimal amount. Thanks to my total revenue being relatively low, it makes an absurd amount percentage-wise.

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  • workerONE@lemmy.world ⁨3⁩ ⁨months⁩ ago

    A hobby is not a business and cannot deduct expenses to lower taxable income

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  • HobbitFoot@thelemmy.club ⁨3⁩ ⁨months⁩ ago

    In the USA, there are tax breaks regarding expenses. A big one is that, because the USA does final sales tax instead of VAT, a business can buy goods without paying sales tax as long as they aren’t the final point of sale.

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