The key realization is that it increases expenses at an equal rate as the revenue increase.

You get $5000 of revenue but spent $5000 on services.

You also have to pay taxes on that $5000 like other revenue.

So many small businesses will try to just exchange the services more directly in some way, or give steep discounts. (Tip: This doesn’t mean it’s entirely correct for tax/legal/accounting purposes, so don’t do big deals like this without consulting professionals. I’m just saying this is what’s done by some people)

> The part that makes it not fraud is that both parties do actually do the work.

The cheap criticisms of these deals always miss this part: something of value is traded for the dollars by both parties. Companies can’t simply circulate dollars between themselves.

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ahtihn 4 hours ago | parent | next [-]

> You also have to pay taxes on that $5000 like other revenue.

Businesses do not pay taxes on revenue, they pay taxes on profit.

Other taxes may be applicable though (such as VAT or sales taxes).

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bombcar 4 hours ago | parent | next [-]

If I spent $5k as a business to realize $5k in revenue the tax is zero (ignoring as you say sales VAT, etc)

The problem comes when the $5k you “traded” also didn’t cover the actual expense to provide the $5k you “earned” - now you have an actual loss even if cash didn’t flow.

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gizmo686 4 hours ago | parent [-]

I could imagine somewhere trying to make that the rule, but I have a hard time imagining that rule being enforceable.

At least for US federal taxes, losses do not need to be tied to revenue. As long as they occur in the same tax year, you can deduct. You can also carryover losses to future years, or pass them through to personal income deductions; but the rules there get more complicated.

	▲	bombcar 24 minutes ago \| parent [-]
		Yeah from a tax standpoint you're fine, but from a "whole business cash-flow" concept you could end up in the hole even though on paper you traded $5k for $5k (accountants might have it booked somewhere as "goodwill" or something to make the books balance).

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lotsofpulp 4 hours ago | parent | prev [-]

There are jurisdictions in the US where businesses owe tax on revenue.

https://en.wikipedia.org/wiki/Gross_receipts_tax

https://en.wikipedia.org/wiki/Business_and_occupation_tax

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lelanthran 2 hours ago | parent | prev [-]

> You also have to pay taxes on that $5000 like other revenue.

What taxes are owed on revenue? Tou pay taxes on profit only.