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If the money is paid as wages, then it wasn't profit.

For example, suppose my company earns $100 in profit in 2017. I choose to pay out $90 in dividends to the owners. That means 90% of earnings have been given to shareholders.

Now suppose I decide to pay an extra $50 in wages. My 2017 profits are now $50. I choose to pay out $45 in dividends to the owners. Again, 90% of earnings went to shareholders despite 50% of 'profits' going to wages.

Talking about using 'profits' to pay costs is somewhat nebulous, since 'profits' are defined as revenues after costs.



Sorry, probably I haven't been clear enough.

I was thinking along the lines of using last year's profits to pay for this year's wage raises and new hires.

If you have a $100 profit in 2017 you can't retroactively pay it out as wages, like your example suggests. You would have to pay 20-40% taxes on the profit (depending on where the company is domiciled) and then you can choose to pay it out during 2018.




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