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cyanrarroll t1_j2e94xr wrote

Reply to comment by Potato_Octopi in ELI5: Why do companies require annual budget be spent 100%? by angrybird7677

This is fundamentally incorrect for taxes in the US. The IRS only cares (on a very simple level) about your earnings minus your expenses only for the specific financial year. A budget is only for internal use and providing information to investors. The IRS doesn't care that my lemonade stand was budgeted to profit $50 million, if I only profit 10 cents then that's all I get taxed for

Edit: responded to wrong comment but the info is still relevant

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Potato_Octopi t1_j2eashg wrote

Yes, but spending $100 to save $20 in taxes still nets you down $80.

That said, sure, if you're having a good year letting everyone spend every dollar in their budget makes sense. You'd reduce taxable income and leave some meat on the bone for next year in case budgets need to be slashed.

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cyanrarroll t1_j2ebwaf wrote

If you believe that the tools, equipment, and people you need next year will be cheaper, then saving money makes sense. But as things are consistently getting more expensive with inflation, it has almost always made sense to keep employees well paid and lots of equipment ready in order to turn money (always losing value) into other assets like people, tools, and land (typically gaining value) while also reducing taxes paid.

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Potato_Octopi t1_j2egrn6 wrote

It's more of a matter of if the thing is really needed or just a 'nice to have' while budget dollars are still available.

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