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How is a company like Reddit “not profitable” yet?
(lemmy.world)
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this post was submitted on 23 Jun 2023
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No Stupid Questions
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Tbh it depends. Usually it is like you say, but it depends on the goals of the owner. Steam is private for years and they make profits. Also if you have smaller business and you treat it like your business, you just want to get sallary for what you do. "Dumb" is too strong word as it depends on your position and goals
It is stupid to buy something just to avoid taxes. If it helps you grow a business - sure. But not to avoid paying taxes. As I said it depends on your goal. If you want your business to grow, have the best seed round or in general company valuation - yeah, reinvest. But if it is business that you do to make a living, it is stupid to spend everything just to not pay taxes
Wasting money is not a good way to avoid taxes.
This is a bad explanation. Dividends are paid out of retained earnings. They are actually taxed TWICE and investing money into the business is a capitalized under GAAP not expensed.
The actual reason is that pre-IPO companies prioritize revenue growth while they are raising money over expense control. The idea is once their growth flatlines they can cut expenses while maintaining their revenue.
You can't deduct dividends from profit for tax purposes. This is just wrong, the aim of companies is to eventually recognise a profit to return to shareholders.
There are certain things you can do to make sure your profit is recognised in a favourable regime (e.g. Google recognising profits in Ireland) and there are tax incentives to reinvest in the company but at the end of the day, the value of the company is the value of all profits its expected to generate in the future. If that were 0 then the value of the company is 0.
Publicly traded and private companies are taxed the exact same way.
Except that private companies have one or more shareholders too. In the end, they want to see a profit.
I have heard that things like this lead to various accounting finagling to lead into statements like "Star Wars was not profitable"; also so that they didn't have to pay actors as much.
So when the greedy little pigboy said "we'll continue to be profit-driven until profits arrive" he was being completely and purposefully deceitful? Since it's not that profits "haven't arrived" it's that they just don't want to say so?
Amazon are famous for this, they try and run AWS at a net loss of whatever profit Amazon Retail makes, because it's easy to spend money quickly at the end of the year to avoid taxes on IP and contracts.