Understanding Amazon's Tax Strategy and Its Implications for Personal Taxes

Many are confused by reports that Amazon seemingly pays zero in federal income taxes. In this article, we aim to clarify the situation, examining how Amazon manages its taxes, the legal strategies involved, and the implications of these practices for individual taxpayers.

How Amazon Pays Little in Federal Income Taxes

Contrary to the widespread belief, Amazon is not avoiding federal taxes. According to financial reports, the company pays billions in cash taxes each year. The misconception arises from the complexity of how companies structure their financials and utilize tax laws to their advantage.

One of the key factors in Amazon's low tax bill is the company's high expenses and substantial investments. Amazon is continually investing in new warehouses, infrastructure, and technological advancements. These investments are tax-deductible, reducing the company's taxable income and thus lowering its tax liability.

Tax Strategies and the Law

Companies like Amazon, as legally advisable as they may be, take advantage of the tax laws as written by Congress. This includes various deductions and credits for expenses and investments. Members of Congress often include special tax benefits for large corporations and the wealthy, which makes legal tax avoidance strategies more available to them than to the average taxpayer.

For example, high-value assets can be transferred tax-free to heirs using trusts. While these strategies are available to everyone, the financial barriers and knowledge required often make them unfeasible for the average individual. Wealthy individuals can leverage these benefits, while the average taxpayer may miss out.

Cash Taxes vs. Profits Taxes

It's important to note that if a company makes a profit, the profits are subject to federal income tax. However, if a company incurs losses, it can use those losses to offset future profits, thereby reducing its tax burden. In recent years, Amazon has indeed paid taxes, often due to the 2017 tax reform and various tax credits for its investments.

Amazon's Specific Tax Actions in 2018

In 2018, Amazon reported more than 11 billion in profits before taxes, but paid zero in U.S. federal income tax. Additionally, the company received a 129 million tax rebate from the federal government, primarily due to the Republican tax cuts. These tax-saving measures included carryforward losses from years when the company was not profitable, tax credits for massive investments in research and development (RD), and stock-based employee compensation.

The Broader Context: Corporate Income Tax Criticism

The situation prompts questions about the fairness of the current corporate income tax system in the U.S. While corporations like Amazon argue that they are compliant with the law, critics argue that these strategies are unfair and suggest that corporations should be taxed more fairly. The debates around corporate income tax often revolve around whether big corporations are being overly generous with their tax arrangements and whether this is at the expense of individual taxpayers.

Conclusion

In summary, while Amazon does pay significant cash taxes, their strategies to minimize their federal income tax bill are based on legal and regulatory frameworks. For individual taxpayers, understanding and utilizing these same strategies can be challenging and often requires significant financial resources and expertise. The debate around corporate taxes continues, with many questioning whether the current system is equitable.

For more information on Amazon's tax situation and the broader context of corporate taxation, watch the video above. If you have any other questions, feel free to ask!