Allegory wrote:
gbaji wrote:
Actually, I meant "taxable income". But I figured folks would noodle that out in context. Not all profits a corporation makes are taxable (not even all "net profits").
No, "not all," specifically
none. Net profits have already been taxed.
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.
Quote:
gbaji wrote:
As a general rule (and this is by no means exhaustive), if a corporation "takes" the profits, either as an increase in cash on hand or in a distribution to shareholders, those profits are taxable.
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.
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.
Quote:
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.
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.
Quote:
gbaji wrote:
The point being to simplify it down to "OMG! They made X billion dollars in profits last year and didn't pay any taxes!!!" is misleading at best.
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.
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.
Quote:
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.
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.