[chii]

> carryforward losses from years when the company was not profitable

yes, this definitely should be talked about. Why can't people's income be carried forward like this as well?

If i made a lot of money one year, why can't i claim away taxes from years that i didn't make income (such that my tax bracket is lower)?

[dcosson]

None of the “well actually” replies you’re getting has yet mentioned that carrying forward personal capital losses is capped at $3000 per year. How could anyone argue that is remotely the same as Amazon avoiding billions in taxes?

There are also a lot of other ways companies get much more favorable tax treatment than people — for one thing just very fundamentally, they are taxed on profits but people are taxed on revenues, with no ability to deduct most major costs like paying rent or healthcare bills below a very high cutoff.

Kind of a tangent here but I can’t help thinking about this discrepancy when I hear about ISAs, and how people should be able to use the funding methods that companies do like selling shares in themselves. You can be a company but without any of the favorable treatment!

[bryanlarsen]

In theory, that's what the standard deduction is for. If you spend $1MM/month on rent, that's a luxury and should use after-tax dollars. If you spend $500, that's a necessity and should use before-tax dollars. Thus the 12,000 standard deduction: the first $1000/month you spend on rent, food etc is done with before-tax dollars, subsequent dollars use after-tax dollars.

[TheCoelacanth]

Businesses get to deduct their actual expenses, though, not just their minimal subsistence-level expenses.

[dcosson]

I'm taxed on my actual income though, not something like the whole country's median income. But I can only deduct a crude approximation of the whole country's minimum necessary expenses.

It definitely works against you both ways in high COL areas, where salaries are higher in part bc expenses are higher, but deductions are still fixed.

[apexalpha]

This is offtopic but my country (NL) allows this:

I earned €1600 in 2016 as a student and then €50k in 2017 and 2018 as I started working fulltime. So now I can make a request for 'averaging' my taxes and I now get a some money back.

[amirs]

Same in Israel

[namdnay]

Not making money is not the same as making losses. You can carry forwards losses you've made on investments.

[lugg]

> Not making money is not the same as making losses.

I have rent and bills to pay regardless of whether I'm making money, that is the definition of making a loss.

[jerf]

"I have rent and bills to pay regardless of whether I'm making money, that is the definition of making a loss."

That is not a loss. That is an exchange of value; you pay $100 for your heating bill and receive $100 of heating.

A loss is when you have some value, and it disappears, and you have no compensating value. Buying a stock at $100 and selling it at $50 is a transaction in which you have less money at the end than you had at the beginning, and where you also had no compensating value exchange

Normal taxpayers do have rights to do things like carry forward losses in many circumstances. Business do get to be not taxed on expenses, but there are conditions on that. You can tell there are conditions on that because you can't just form an LLC and declare all your expenses to be losses, because you won't meet the conditions for your expenses to be losses. Note that that is the source of the problem, "form an LLC" is something you can totally do very easily, it's the failure for your personal expenses to qualify that is the problem.

While it might be emotionally satisfying to tax businesses on expenses, it's not hard to think about it a bit and realize why letting taxpayers deduct all their expenses, or trying to tax businesses on their expenses even when they didn't make a profit, are both not great ideas. (Think about the incentives created. Taxpayers don't need any more incentives to spend all their money on "expenses" as it is, if you've seen the credit card debt statistics.)

[chii]

A company paying a cost of $50 to produce widgets for 1 year (and don't sell any that year), then selling all the widgets on the 2nd year for a profit of $100, can claim that they made a loss of $50 in the previous year, and therefore only have $50 that's taxable.

A person who works for 1 year for $100 income, then stops working the 2nd year (and live off their income from the 1st year), must pay their taxes at the $100 rate. If they are allowed the same 'carry forward' as a corp, they should pay at the tax rate of $50 for both years, rather than at $100 for the first year, and $0 at the 2nd year. And yet, this isn't allowed for a person. Of course, you could claim that the gov't can't tell that the first $100 is supposed to be 'averaged out' in the future. So would the situation be any different if you lived off savings for the first year, and replenished them in the 2nd year? I don't think this is any different.

[cascom]

Sorry that is not how it works - basic tenets of accounting (matching revenues and costs) those widgets would sit on the balance sheet and no loss would be recognized in year 1 and just profit in year 2

[will_brown]

>those widgets would sit on the balance sheet and no loss would be recognized in year 1 and just profit in year 2

Unless of course the company manufacturing the widgets (A) sells them to a wholly owned subsidiary (B) for a loss...then A can take the deduction.

[phkahler]

Paying wages and by extension R&D is nothing more than business expenses. It's hard to see why that qualifies as losses that can be used to offset future earnings. I'm sure there is an "explanation", but that is ultimately what people are upset about. It has lead to where they are today and to many people that doesn't sit well.

[jerf]

I am a believer in being upset about the right things. "Expenditures" are not automatically "losses". There are things that may be upsetting about how businesses are taxed, but there mere fact that they are taxed differently than people, or that it subjectively feels unfair that they are, is not one of them. There are reasons for that variance in taxing. Many of them are quite good and ultimately play to the benefit of both the employees of that business (who like having a functioning business around to pay them) and society (who like not just the taxes that come from the business, but all taxable activity it generates, including paying people incomes and health insurance and such).

If most people feeling their way through this problem got their way, they'd simply destroy businesses entirely. They wouldn't necessarily mean to, and only a handful of people would actually appreciate that as a result, with even fewer of those would appreciate it after ten years of experiencing it, but it would be the result.

This is a thing that has happened, and can be studied in history, and is actually happening in the world right now; countries have destroyed their entire business base for good, feel-worthy reasons. Generally speaking, most people have not liked the results. It is not a thing that is beyond the pale, or impossible to happen, or can't happen here, so it's worth encouraging people to be more careful than just feeling.

(This is more opinion than the above, but I don't really believe in the existence of "businesses that aren't taxed", because the business is non-trivially responsible for all of the income tax their employees generate, and directly pay Social Security, health care taxes, sales tax on all the things they buy, and so on. It isn't really the case that there are companies that reach the end of their fiscal year and not a single dollar was "paid in taxes". All it is is that they aren't necessarily paying income taxes, one particular tax, in a field full of lots and lots of taxes. The idea that "companies aren't being taxed" is a lot of rhetoric, which isn't intrinsically a problem, but it can be very misleading and lead to emotions not well-calibrated with reality. By this standard, there's actually a lot of Americans who "don't pay taxes" too, which really makes it all seem a great deal less unfair, and even pay negative taxes, but they still pay various taxes even so, because income is only one taxation element.)

[caprese]

I love the debate on how evenly distributed the government stuffs its coffers

It pits everyone against each other to make sure someone else gives more money to the same entity

Fascinating

[sokoloff]

Rent and bills are (in general) not deductible expenses.

[chii]

but the rent and bills of a corporation are deductable? Why is it different?

A corporation has the same legal rights as a person, but a person has to pay more for these rights. It's unfair imho.

[sokoloff]

Ordinary and necessary business expenses (expenses incurred with a reasonable overall expectation of profit) are, in general, deductible in the US because we tax income.

Personal expenses are not.

People end up paying all taxes anyway, just sometimes one or two steps removed from the legal entity/TIN who files the returns.

[cascom]

1. There is a practical aspect - every person would have to have a balance sheet/financial statements

2. Those expenses are in the furtherance of generating profits rather than for personal consumption are we really going to give people write offs for their Apple watches and $6 latte’s?

[mikekchar]

Sounds silly, but feel free to become a corporation. Well, it's not quite as easy as I say. When I went remote I had to start my own contracting company. Because I live in Japan and (at the time) corporations were the default company configuration, my contracting company was formed as a corporation. There are lots of advantages:

- I can deduct the rent for my work space. In fact, theoretically in Japanese law I can even rent an entire building and offer myself the ability to rent living space for about $150 per month, with the company eating the rest as a loss. Probably you can do something similar in other countries (although I couldn't actually do it... because in order to rent a place I need a company and in order to form a company I need an address... so... well, it didn't quite work out).

- Internet, some of my utilities, etc, etc are expenses. Some furniture as well. Some of it has to be depreciated, though, so I don't get the benefit immediately.

- I can set my salary to anything I want. If it is beneficial for the company to make a profit and for me to make peanuts, then it's fine. If the opposite is beneficial, then it's fine.

- A fair number of expenses can be deducted by having a life insurance plan for employees, etc, etc.

On the downside:

- I have to submit all my accounts using dual entry accounting. The government gets stroppy if I make a mistake because they expect me to be a corporation.

- I have to submit year end accounting. Seriously, I have no time for this and employ a wonderful tax accountant to do this for me. My tax accountant saves me money, but getting a good one is like getting a good car mechanic -- it's hit or miss and can be very expensive if you choose the wrong person.

- I have to do the payroll, calculate withholding tax, pay fees and employment taxes. I have to do this every month and if I'm late I get a really big fine. Luckily my wife does this (seriously, I would never do this without my wife doing all the heavy lifting)

- I have stupid amounts of bank fees because I have to transfer money between 3 different banks just to pay myself. We actually use a sneaker net in one phase: I literally withdraw our payroll from the ATM and deposit in another ATM just to save $20 in transfer fees. Of course, I have to document all of this so the government knows I'm not fiddling anything.

In the end, it's an absolute PITA. I don't really recommend it. I think I save a little money this way over when I was being paid salary. It's really hard to tell, though. However, if you factor in all the work that I need to do, I think I'm being paid about $2 an hour for that effort. Or I should say my wife is. If I didn't have her, it would not be worth it at all.

[setr]

>although I couldn't actually do it... because in order to rent a place I need a company and in order to form a company I need an address... so... well, it didn't quite work out

Couldn’t you get the building first, register as a corporation, then subsidize all following months through the corporation?

[temp1831]

Let's say you run a gas station, which is a notoriously low margin business. You have $1,050,000 in revenue this year, and $1,000,000 in expenses, so you make $50,000.

Let's say you run a small software company, which is a high margin business. You have $1,050,000 in revenue this year, and $500,000 in expenses, so you make $550,000.

You should be taxed on the $50,000 and the $550,000, not on the $1,050,000. Otherwise, if business expenses were not deductible, low margin and capital intensive businesses would be punished severely. We would have decreased investment in the economy and everyone would suffer for it.

If individuals could deduct their expenses, it would encourage people to spend every penny they make. The mortgage interest deduction is one example where this nudge becomes apparent (albeit real estate has merit as an investment, not just consumption). We already have a low enough savings rate as it is.

[hedora]

By the logic that justifies subsidizing low margin businesses, housing, food, and other necessities should also be tax free.

Let’s say you make $100,000 a year as a school teacher in SF, and pay $7K a month for a three bedroom house for your family. That’s $84K just for housing. Food clearly uses up more than the rest.

If people and corporations were taxed the same, you could carry over the loss to a future year where your spouse cashed out some stock (or you got a job that paid a living wage).

Alternatively, we could pay everyone a fair wage, and stop subsidizing zero margin businesses that can’t afford the labor costs (which means things like gas would cost a bit more).

I’m for the latter. People have to work in these zero margin places, and their employers should figure out how to make more of a profit (and pay better), or go under.

Why should my taxes subsidize petroleum distributors, Walmart, Amazon, etc?

[edwhitesell]

At a high level of just considering taxable income that is true. However, the difference is there are a lot more things a corp can do to reduce taxable income than an individual can do. If you happen to be the owner of a corp you can also use those things to your individual benefit.

If the argument is to say "income is income", then "expenses are expenses" should apply too.

Edit: typo

[phkahler]

If you tax revenue, the government can be funded with much lower tax rates. Businesses will always pass costs on to customers. To claim your benefit is really for everyone else seems a bit narcissistic.

[fjsolwmv]

You get a personal exemption and a standard deduction for your living expenses. Yes, it's unfairly low compared to Jeff Bezos's deduction for his Gulfstream plane and executive cafe.

[OscarCunningham]

They're related. Suppose someone makes $100000 net over two years. Should the amount of tax they pay depend on what happened in the first year?

[C1sc0cat]

I thought you could carry forward income tax if you say paid a lot in one year due to share options? you could use this to offset later years tax.

[fjsolwmv]

Only if you set up a corporate tax shelter for yourself.

[ex_ex_nihilo]

Individuals can only do this for 7 years FYI. Corporate carry forward is much longer (is there even a limit? I'm not sure. I usually don't keep my corporations that show a loss for longer than a few years before dissolving them and forming new ones).

[ensignavenger]

While the article states it as "did not make a profit" what actually happened was they lost money, that loss was carried forward.You can do this too! If you have previous years where you had a loss, you can carry that loss forward just like Amazon does. There are rules around it, but it isn't that complicated.

[TomMckenny]

There used to be allowed. It was called "income averaging". But then the tax philosophies of the 80s happened.

[Waterluvian]

Forms of that happens in Canada. My effective tax rate was 11% last year because I maxed out my tax shelter retirement savings plan from all the years I made no money.

[cascom]

You can carry forward capital losses.

Theoretically, this is appealing - practically, I see a lot of problems

[TomMarius]

What you suggest is something completely unrelated.