xard777 wrote: Thu Aug 25, 2022 10:56 pm
Owners of small businesses should really only pay tax when they SELL the company (even then they could defer the tax liability by purchasing stock of another company with the sale of their existing company).
You have to realize that you only pay tax on profits accrued.
If the owner of the small business has let's say for talking sake $100'000 in profits then they now owe say 30% ($30'000) to the taxman.
Now, the owner can legally reinvest ALL of the working capital $100'000 back into the company by way of purchasing stock in bulk say from a manufacturer instead of their usual wholesaler, and obtain better discounts along the way. In doing so they now show zero profits and are liable for 30% of those zero profits (which is now $0 dollars).
The small business owner can do this every year that the company is running which should also allow them to expand the company exponentially (could be that they open more stores and obtain better discounts via manufacturers through volume buying).
It does not have to be all stock, they could purchase a brand new works van, obtain a storage facility for excess stock, lease another retail outlet or open more cloud outlets. As long as they reinvest ALL the working capital back into the company then they are NOT breaking the law and are only liable for tax on the profit that is left each year.
Why would you kill your business by giving away 30% growth each year, it does not make any sense.
Don't pay for other people's wreckless budgeting programs - keep ALL of your hard-earned working capital and reinvest it back into your company and when you decide that it is time to retire then sell your company and reinvest ALL the proceeds into Tesla shares and sit on the beach in the Cayman Islands
Xard777
If the owner of the small business has let's say for talking sake $100'000 in profits then they now owe say 30% ($30'000) to the taxman.
Now, the owner can legally reinvest ALL of the working capital $100'000 back into the company by way of purchasing stock in bulk say from a manufacturer instead of their usual wholesaler, and obtain better discounts along the way. In doing so they now show zero profits and are liable for 30% of those zero profits (which is now $0 dollars).
Oh, no,no,no.....It does not work that way.
1) If you talk about profits, it's the year end (tax period) balance sheet that may show some. If that for example shows 100,000 profit, you got to pay tax on that. During the course of the year (tax period) there is no such thing as profits to talk about, just cash flow. You may do with that what you want.
2) Purchasing products to keep on stock does not reduce your profits. How come! That's not how accounting works.
It's expenses that reduce profits. Something that you mention later.....
".....brand new works van, obtain a storage facility for excess stock, lease another retail outlet or open more cloud outlets, a condo for your mistress who happens to be the company's tax consultant, open more stores.....
Ask Trump, he knows about creating a network of expenses to reduce his tax liability.....
XARD: If that was the case then Amazon would be paying 30 Billion dollars every year from the massive cache of goods held for same-day delivery service and Warren Buffet would be paying the same for the massive cache of shares held over the past 50 years. Instead, they only pay tax (albeit a reduced amount) when they sell said goods and shares without purchasing any more goods and shares. If they seel their wares and leave it as cash on hand then they will have tp pay tax on said cash
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