How Amazon Paid $0 in tax; How to use tax deductions properly
Amazon, the company owned by the richest man in the world as at the time of writing and the second biggest employer of labor in the United States after Walmart the superstore chain has avoided tax so well than any other company in the United States not illegally but through legal processes. No matter how big your tax law is and even though it is covered with a hard back with over 100 pages, there is always a way to beat the tax collector and the government to it and in this post, I will be looking at how Amazon beat the government to it.
Amazon starting from the year 1994 with one man Jeff Bezos selling books online. Gradually the company has been growing and in 2018, the company doubled its revenue from $5.6 Billion to 11.16 Billion but the company paid $0 as federal income tax.
What! Why will a company making this much money not pay tax?
It is called Tax deductions. Every company can use tax deductions but in this post, I will be looking at the deductions Amazon gets and why it isn’t paying tax?
Research and Development Tax Credit
Blue Origin and other research company owned by Amazon are actually being done for research and development purposes. It is true that Amazon’s Blue Origin want to change the space world or the world of AI and robotics but the truth is Amazon is getting 7% deduction in tax for doing this as the government gives the company 7% deduction in tax for the total amount spent in research and development. The United States want to be at the top of technological development and being a technological superpower and they need to encourage people to do this and one way to do this is by R&D tax credit. The company saved about $1.4 billion in 2018 due to R&D credits.
Depreciation
The trump administration has been very good to businesses in the United States and with that allowed company to skip depreciation giving them full tax benefit from the beginning of the business. Meaning if a company builds a new property, it can claim the full cost of the property as a tax deduction the same year instead of spreading it over a very long period of years.
Stock Based Compensation
What do you say about companies paying their staffs in stocks instead of cash? It looks like they like their employee owning a part of the company but that’s not really true. The company saves physical cash and pays his employees in stocks which just reduces the value of the stocks a little and the stock holders pay for this instead of the company, all the company needs to do is print out more stocks just like printing more money and the government do not tax shares until they are converted to cash. Amazon saved $1 billion paying its employee in shares.
