I just got done looking at someone’s tax returns and for several years they reported millions in “negative” income… how is this possible when this person is a billionair.
In: 4
When you’re a person you report your income to the government and they tax you first, then you spend what’s left on rent, food, electricity, etc. When you’re a business you subtract all your expenses first then you report your income and you’re taxed last. You could have a business generating one million dollars but your expenses are slightly higher, that’s a loss.
However, the business is still around, it’s still making money, it’s still renting an office, paying salaries, etc. You’re an employee at your business, you get paid, too, and you get to subtract that amount from you business income. You’re then taxed on it as person, but it was a loss for your business.
You could grow your business every year and spend more to grow your business every year, and if you don’t have a lot of excess money when you’ve paid everything, you’re losing money or breaking even. Even though you personally have a great income, a big house, a new car, etc., your business is spending its profits to increase itself and that’s a tax loss even though it’s worth more every year. You decide to build a new warehouse, you get to write off this expense over several years. Now your business is worth more and making more, but because you have to pay off the warehouse, that’s a small loss.
The key is that business pays all of its expenses, lowering their value, then they’re taxed only on what’s left, while you’re taxed immediately on everything, then you pay all your expenses.
Latest Answers