Uber has never once turned a profit, and is allowed to continue running their business. If you’re a small business owner running an ebay or ecom business, and you claim losses for 3 out of 5 years in a row, it’s likely that the IRS will audit you, and could deem you a hobby. Amazon is often cited as not generating a profit for many years, but is now profitable. For them, it was somehow okay to run a business making no profit! So like, how come small businesses can’t claim losses, but big corps can?
There is nothing preventing business from running without making a profit as long as they pay any expenses or bonds that are due.
The current tech setup depends on high stock valuations. They issue stock, sell it at a high rate and use that to pay expenses. The sale of stock does not count as net positive in revenue since they are effectively selling a part of their business to investors, making them “owe” their new shareholders equal the amount they gained from them.
As long as investors are interested and the business is growing it’s possible to keep this going for a long time and never pay taxes since they spent everything they gained.
If they are not able to pay their expenses they will have to file for bankruptcy like every other business, whether it’s restructuring bankruptcy, transfer of ownership of dissolution.
So why can’t small businesses do the same? They absolutely can, but the money they get from selling stock is nowhere close. These tech companies are sold sometimes at 20x the revenue where small businesses are likely going to get 20x profit or less.
I think most tech companies are over valued, not gonna lie. In a hypothetical situation where you know all future dividends of the company the value of the share should be the sum of the future dividends discounted by number of years at an interest rate. If the company is never going to pay out dividends then it’s “real value” is zero.
“Real value” as in it has no value as a commodity like gold or a collectors item. Looking at you Tesla.
And the same thing is true for private businesses, most of the time they’re only private in the sense that the “shares” aren’t listed on the stock market, there’s still a bunch of investors behind the scene that each own a certain % of the company, it’s not just the figurehead that acts like they’re the sole owner (see Twitter with Musk and the documents released recently showing how much money for the purchase came from third parties).
Because big corporations are better at paying off governments than smaller businesses.
Governments aren’t the ones paying big tech, they protect monopolies if that’s what you mean. Even then that’s dubious with what’s happening recently in europe and America
Amazon pays taxes. Less than what they should? Yes but they are paying https://www.cnbc.com/2020/02/04/amazon-had-to-pay-federal-income-taxes-for-the-first-time-since-2016.html
Small businesses absolutely can, and should claim any valid expenses. In theory audits are not punishments. They happen to large companies too. But in practice small businesses often don’t have full time accountants keeping their records and some receipts are lost after the cost has been reported.
Like many compliance regulations bookkeeping has costs that larger business are easier able to bear. Small businesses do get some aid notably a lot of money went out during covid, but big businesses have the people and resources to take advantage of that aid more than a solo proprietor who wasn’t even aware. Although small businesses never seem to get those “to big to fail” bailouts.
To touch on the hobby point if you run a business 40 hrs a week and lose twice what you make a year the IRS probably won’t mind. But if you’ve got 3 businesses you use to right off expenses (like craft brewing equipment, leather working tools, or art supplies) and you only have ever sold a single belt on Etsy over the span of a year they’ll probably have an issue.
But in practice small businesses often don’t have full time accountants keeping their records and some receipts are lost after the cost has been reported.
Not to mention large businesses can spend more money on lawyers that are able to drag out court cases through delay tactics and are far more likely to get the government to settle.
The difference may also be how the business is structured. Personal vs a corporation (LLC or otherwise).
Yes there is a difference, but LLC is a legal concept, not a tax one. The IRS taxes sole proprietors the same whether or not they have an LLC.
Tax entities include sole proprietorship (default), partnerships, s corps, c corps. Any of those can be LLCs, but they don’t have to.
Yes the main appeal of a LLC is that you aren’t liable if your LLC gets sued. As a sole proprietor if someone slips and falls in your store they can recover damages from you personally. As an LLC they can only get the business’s funds.
This means that even if awarded damages from a civil case tanks your business your won’t be out of a home and your personal bank accounts are safe (not considering the burden of lossing your source of income).
