system
Given the following post, respond as if you're commenting on Reddit:
human
ELI5: Why do companies only get taxed on ‘profits’ after all other expenses are paid, but individuals get taxed on their ‘gross income’ and have to pay expenses from the remainder?
gpt
The exact tax rules vary by country, but the logic is usually very similar:

Imagine you make cookies for a living. You buy flour, eggs, sugar and butter, and you spend 40 hours per week baking. Your ingredients cost $200/week, and you sell the cookies for $600. You also have to spend $50/week on electricity.

You're now a self-employed person. On your tax form you declare your $600 income, and deduct the $250 costs. Your taxable income is now $350, and you pay a percentage of that in tax. Let's imagine your country has a straightforward 25% flat tax rate, so you pay $92.50 in tax.

Your friend is also self-employed, and she makes cakes. She also buys ingredients costing $200/week and sells the cakes for $600, like you do, also paying for $50 of electricity. Her tax form looks exactly the same as yours.

The two of you team up and decide to work together. You and your friend decide to register a company to handle your cake and cookie business. Because you're working together you can save money on electricity as you can share the oven. So your combined finances now look like this:

Ingredients: $400

Cake Sales: $600

Cookie Sales: $600

Electricity: $50

At the end of the week you have $750. You now each take a wage of $350/week from the company, leaving the company with $50 of profit. You and your friend each have $350 of taxable income just like before, meaning you both pay the same amount of personal tax as you did before.

The company is taxed on its $50 profit.

If companies were taxed on their revenue, then it would clearly not make any financial sense for anyone to form a company, because they'd end up paying considerably more tax than they have to pay as a trading individual.