Ah yes, the obscure tactic of having savings set aside for rainy days, you know, the thing they tell all us normal people to do, and which we get blamed for not doing in case of hardships and told to pull ourselves by our bootstraps… Novel indeed…
Companies don’t have savings, they have profits. And profits are taxed. This is to prevent money hoarding. Most companies try to reduce their net profit as much as possible to pay less taxes, setting it aside just means the company will be running out of money for no reason.
It’s so much more complicated than that, but of course they can have “savings”. What I will explain, is that profits are only taxed when realized, they’re not gonna keep getting taxed until they run out of money in any country I’m familiar with… They made X amount of profit in year Y, they get taxed Z% on it and that’s that. It can then be put in a (business) savings account with interest, invested, or anything else they want to do with it. When they make profits from these “savings” or investments, that profit will be taxed, but only that profit, the sum itself which was already taxed is not taxed again the next year.
You are right that companies will try to reduce their profit as much as they can to reduce the amount of tax they pay by spending as much of the profit within the fiscal year as possible, but that doesn’t mean they can’t save it (and pay taxes on it, yes). This is because if you’re spending the money on things you “need” anyway, then why not?
Profits are basically the company’s salary, ignoring the complexities around accounting, it really works very similarly to how it works for an individual…
Here’s an article discussing how business savings accounts work in the UK, as an example.
Ah yes, the obscure tactic of having savings set aside for rainy days, you know, the thing they tell all us normal people to do, and which we get blamed for not doing in case of hardships and told to pull ourselves by our bootstraps… Novel indeed…
Companies don’t have savings, they have profits. And profits are taxed. This is to prevent money hoarding. Most companies try to reduce their net profit as much as possible to pay less taxes, setting it aside just means the company will be running out of money for no reason.
It’s so much more complicated than that, but of course they can have “savings”. What I will explain, is that profits are only taxed when realized, they’re not gonna keep getting taxed until they run out of money in any country I’m familiar with… They made X amount of profit in year Y, they get taxed Z% on it and that’s that. It can then be put in a (business) savings account with interest, invested, or anything else they want to do with it. When they make profits from these “savings” or investments, that profit will be taxed, but only that profit, the sum itself which was already taxed is not taxed again the next year.
You are right that companies will try to reduce their profit as much as they can to reduce the amount of tax they pay by spending as much of the profit within the fiscal year as possible, but that doesn’t mean they can’t save it (and pay taxes on it, yes). This is because if you’re spending the money on things you “need” anyway, then why not?
Profits are basically the company’s salary, ignoring the complexities around accounting, it really works very similarly to how it works for an individual…
Here’s an article discussing how business savings accounts work in the UK, as an example.