Can You Avoid Paying Taxes If Your Business Runs at a Loss?

This article was originally published here.

“If my business runs at a loss, that means I don’t have to pay taxes… right?”

Technically, yes. But also…not really.
Let’s look at this further in depth to explain it better.

How Business Taxes Actually Work

At its core, tax is calculated as a percentage of your profit which is your income minus your expenses. If your business earns less than it spends, you’re technically making a loss, and you won’t pay income tax for that year.

Now, you can claim plenty of legitimate business expenses such as:

• Cost of materials and supplies
• Staff wages
• Rent or office lease
• Utilities (electricity, water, internet, phone)
• Business subscriptions and tools

As long as the expense directly relates to earning income, it’s usually deductible.

So If I Claim More Expenses, I Pay Less Tax?

In some ways, you should claim every legitimate business expense you’re entitled to, that’s just smart business. But stretching the definition of “business expense” is where people get in trouble. I’ve seen business owners try to claim things like:

“Can I claim my kid’s daycare? It frees up my time to work!”

Nice try, but no. The tax department doesn’t see it that way, and if you overdo it, they will come knocking. A simple rule to follow is claim what’s legitimate and ignore what is not.

Running your business at a loss year after year might sound like a tax-saving strategy, but it’s really just waving a red flag to the tax office.

What If I Spend More on Actual Business Stuff?

Technically, yes, if you spend more on legitimate business expenses, you’ll reduce your taxable profit. But here’s the catch:
You’ll also be reducing your actual profit.

Realistically, you didn’t start a business just to pay zero tax. You started it to make money.

Here’s an example of a scenario:
“Yuu runs a small counselling service. He buys a new tablet for $900 to help with client sessions.
The company tax rate is 28%. That means Yuu can claim $252 as a tax deduction.”

Cool, right? That’s a legitimate tax saving. But if Yuu buys five tablets “just because they’re tax-deductible,” he’s not saving money, he’s just wasting it.

Tax deductions are NOT free money. They’re just a small discount on something you were already going to spend for your business.

The Goal Isn’t to Pay Less Tax, It’s to Make More Profit

Let’s meet Fellemo, who believes the best way to avoid taxes is to spend big. He hires the most expensive marketing agency, uses premium office supplies, and pays for top-tier everything.

Sure, he reduces his profit, but he’s also draining his bank account. A good business owner doesn’t just look for tax write-offs.
They look for value, investments that grow the business, not just lower the tax bill.

What If My Business Is New and I’m Losing Money?

Relax. You’re fine.

Most new businesses start off running at a loss, especially in the first few years. Restaurants, farms, contractors, all have high setup costs before profits start rolling in.

What matters is the trend.

If your business is improving and losses are shrinking, that’s a healthy sign. But if you’re consistently losing money and calling it a “tax strategy”… that’s not a business. That’s a hobby.

If you hate paying taxes, here’s the truth:
The only people who don’t pay taxes are those who aren’t making any money.

And that’s not the goal, is it?

Make profit first.
Claim expenses wisely.
And remember: paying some tax just means your business is doing well.

If you really can’t stand paying taxes, maybe it’s time to start a charity instead.