Hacker News Reader

Comment by MattGaiser | Hacker News Reader

> In Germany a company needs to be profitable. If you run your business at a deficit for too long, you get your business closed, and then you usually even have to pay back a lot of taxes.

What is this about? The government forcibly closes companies that lose money?

View on HN

It's mostly the same also in Italy. A company is considered "under systematic losses" (translating directly from Italian) after 5 years of losses. It's not closed, but it's considered, basically, a vector for something that's "not business", so it gets a minimum of taxes to pay, loses some fiscal advantages, and pays more additional taxes. Startups (as in "formally registered to the startup register") are not subject to this rule, but they have other limitations (and benefits)

The IRS has something similar, hobby vs business, though doesn't seem to be as aggressive.

https://www.irs.gov/newsroom/earning-side-income-is-it-a-hob...

This applies in America as well, at least for the IRS. One can only run a money-losing business for a few years before they stop considering you a business and instead a hobbyist.

Is this only applicable to small businesses? As Uber certainly isn't considered a hobby.

I think part of the equation is whether you are earning and spending money designed to eventually make money (supposedly), or whether you have a consulting business with nearly zero revenue and (say) $5000/year in expenses, ie, you have a fake consulting company with one employee, yourself, so you can deduct your hobby expenses.

If you have 10 people working for you, customers paying you every month, a loan for a building or equipment, etc., my guess is that the IRS will let your business run at a loss much longer.

It's to prevent people from registering their hobby projects as a businesses to deduct expenses from their taxes.

I think (but I maybe wrong) it is a "protection" against selling product under it's price.

Reply on news.ycombinator.com