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.
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I’m going to say “you” a lot in my answer, but keep in mind that “you” can refer to any taxable entity, whether that’s a person or a company. Also keep in mind that “your” income and your company’s income are not necessarily the same thing.
The difference between a billion and a million is about a billion. You could spend, set on fire, throw away, donate, be robbed of, or otherwise lose 10 million dollars every year for an average lifetime and still have a few million dollars left when you die.
How you report negative income isn’t all that complicated. Let’s say, hypothetically, that you own a chain of hotels. You commission a new building that costs 8 million dollars. Now let’s say that between the time it opens and the end of a taxable period, it only generated 4 million dollars in revenue. If you have no other source of income, then you *lost* 4 million dollars that year. It doesn’t matter that you started with at least 8 million or that your hotel will be expected to break even by a certain date. After all, the IRS taxes *income*, not money that you *have*.
This is true for all of your sources of income. Let’s say, hypothetically, that you have a hotel chain and think about starting up a casino. Your hotel chain has already generated 8 million dollars this year. Your casino cost 8 million dollars to build. You have a taxable income at this moment of zero. Or if, you know, you have generated 8 million dollars in income but lose 18 million dollars in someone else’s casino because you’re a prolific gambler, then your losses currently sit at negative 10 million.
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