If you paid a single dollar in Federal Income Taxes....Follow

No, "not all," specifically none. Net profits have already been taxed.

That's entirely wrong. Neither of those is taxed as part of the corporation. An increase in cash isn't taxed because it is an asset and not income. Dividends aren't taxed as income by the corporation because they've already been taxed as net income. They are only taxed as personal income by shareholders. Neither of those is the corporation making a profit.

It's not. If a corporation has 10 billions dollars in EBT and still has that same 10 billion dollars in EAT when the corporate tax rate is 35%, something fishy is going on.

It's exactly the same for individuals. Income tax applies to income, whether it be for persons or corporations. You do not pay income tax for a bank loan. You do not pay income tax on your property. You do not pay income tax on monetary assets. And, if you're a huge corporation, you don't pay income tax at all.

Edited, Mar 4th 2011 1:03am by Allegory

And may I add, in this role he is a shining example to us all.

Clearly you are incorrect, or those corporations would not be able to make "billions of dollars of profit" and yet pay zero taxes. The fact that it's some guy on a blog site raising the alarm about this and not a metric ton of IRS lawyers doing so sorta suggests that there's more to it than that. Without knowing anything specifically about the earnings of those corporations, we can certainly conclude that what the blogger is listing as "profits" isn't the same as "taxable income". Why? Because even with deductions, the AMT for corporations is 20%. They'd have to pay "something" on those profits.

Unless those billions of dollars of profits aren't actually considered taxable income. Get it? Critical thinking skills kinda win the day over wild speculation every single time.



Yes. Congratulations. We agree on this. My point is that the blogger used the broad term "profits". That just means an increase in the value of something (an economic gain). While you and I both understand that for tax purposes "profit" has a very specific meaning, I'm suggesting that the blogger isn't using that meaning when writing his article. The proof? My point above about the IRS not being the ones taking note of this.



Huh? They're not taxed as income because they've already been taxed as income? WTF? My point is that a corporation has the choice to take that money and either keep it as cash on hand, or pay it as dividends to their stock holders *or* they can spend it operationally. And if they take the latter choice, it counts as a business expense and directly subtracts from those earnings for purposes of determining taxes. This is why I keep pointing out that profits are only taxed if they come from specific sources *and* they are realized in some way. If the company spends the money on an expansion of their production floor, for example, they don't retain the profit, and it's not taxed as income.

Which leaves us two cases of taxable income for corporations. Both of which I've mentioned. It's like you understand how they work on paper, but don't understand *why* they work that way.




Really? So if a company's stock or investments increase their capitalization by 10 Billion dollars over the course of the year (which we both agree is *not* taxable) and at the same time they "earn" 10 billion dollars in sales, but they spend 10 billion dollars in expenses (for pretty much anything btw), what just happened? You have a company that has 10B in EBT, and 10B in EAT, and yet they paid zero dollars in taxes.

If it's really "fishy", the IRS has lots of people who'll gladly step in to make sure the government is getting their fair share. Somehow, I'm going to take the insistence of you and some blogger claiming that there must be something fishy going on with a massive grain of salt.

Silly me. I'm going to go with the IRS having a far far better idea of whether or not someone is actually violating tax law than you.




The difference is that a corporation, unlike a person, can pretty much at will choose to put money into expenses which prevent them from actually earning an "income" for purposes of taxation. This is why I pointed about the whole dividend thing. About the only case where a corporation absolutely has to pay income taxes is when it pays dividends. And that's because in order to pay those dividends they have to claim that amount of money as income. Any other earnings they make can be spent in some way.


And if you think about what a corporation is, this makes complete sense. As I pointed out earlier, a corporation is a collection of money from individuals in a business venture. The difference being that the corporation is considered a separate financial entity. But the purpose of the business from the perspective of the investors is to turn a profit for them. Corporations don't really make profits. They are a pool of money "invested" in a business. As long as the money in the pool keeps being invested into the business (ie: it's spent on business related things), there is no taxable income (obviously, other actions are taxed, but not as "income). The income happens when they pay money back to those who invested in them from the money they earned. Or, in some cases, the corporation can choose to keep profits as cash on hand, and may not be able to avoid paying income taxes on that (depending on other factors, as my example above illustrates).



I keep pointing this out, but you aren't listening. A corporation has significant ability to spend its profits back into the business. The corporation doesn't have to eat, or put a roof over its head, or send its kids to college. All of its assets are part of the business venture the investors created when they started the corporation. Just because those assets grow doesn't mean that the corporation pays taxes on it as income. It's weird because you clearly understand this, but can't seem to grasp what this really means in terms of taxable income.

I know that what they are doing is not in violation of the law.



See. You agree. So what is the problem?




Ok. But what the hell is "tax avoidance"? If they are not violating the tax laws, then aren't you doing exactly what I started out saying people were doing: Just complaining because they don't pay as much tax as you think they should? Aren't you guilty of tax avoidance when you file a return and ask for the extra money back? Why don't you just let the government keep it if you think it's so important that we all pay more?


You act as though it's some kind of duty for everyone to pay as much in taxes as possible. Sorry. I don't agree with that. The government takes our money in the form of taxes. We're obligated to pay those taxes only to the extent which the people have passed laws mandating it. The very idea that someone (or a group of someone's in the case of a corporation) should be expected to deliberately modify their actions so as to pay more taxes than they have to is absurd.

Unless they were, you know, dodging taxes they were intended to pay.

A company doesn't pay taxes for distributing dividends. You said distributing dividends was a company taking profits; it isn't. The company is not taxed for doing so.

All profits are taxed, unless the company is specifically dodging them through various means, such as setting up a shell company. Under normal circumstances, with the law working as intended, your revenue after all expenses is taxed. A company spending on a factory expansion isn't failing to retain a profit. It's a cost of doing business, which is subtracted from revenue to arrive at EBT (pretaxed profit).

You seem to be acting like it isn't wholly obvious to everyone the difference between revenue and profit, probably because you don't seem to fully understand the difference yourself.

If they took in $10B in sales and spent $10B in expenses, they wouldn't have an EBT of $10B; they would have an EBT of $0 (and an EAT of $0). EBT is one of the last lines on an income statement, followed by tax expense and then finally earnings after taxes, which is net income. It is revenue subtracting all other expenses.

Because what they're doing is legal. It's following the language of the law against the intent of the law. Laws should be constructed so as to align was is legally possible with what is intended.

Edited, Mar 5th 2011 2:17am by Allegory

Smeared all over his face and chest in tribal markings.

You keep acting like it is a surprise that what they're doing is legal. The whole point is that it violates what's clearly intended by the law.

If the rules of dodge-ball state "you may not step outside the border lines," then clearly jumping outside it is perfectly legal to do, but it also clearly isn't what is intended. Why would we go through the trouble of having a income tax on the highest corporate bracket if we didn't intend for them to pay it?

No, you said:

You stated the corporation was taking a profit by distributing dividends, which they aren't. Investors are taking a profit. Additionally that is personal income and has nothing to do with the subject at hand, so it's both wrong and irrelevant.

One of the most common methods is to restructure where losses and gains occur, shuffling it around so that their losses occur in countries where they primarily earn their profit and have their presence, but gains occur in nations where they might have only a mailbox for the sake of achieving a better tax rate. why do you think so many companies have mailboxes in a tiny little building in the Caymans?

Have you never heard of a shell company?

Oh I get it. I also get that creating a subsidiary outside the U.S. to buy ownership of your factory that you built at your expense and sold for almost no profit taxable in the U.S. isn't accurately representing the profit you are generating.

The intent of the law of the law is that if you have $100 dollars the government should take $35 dollars. It's not for you to hand that $100 off to your friend Joe at the end of the year and say "Sorry, I didn't make any money. Why, I'm so poor my friend Joe has to buy me lunch everyday!"

Edited, Mar 8th 2011 1:13am by Allegory