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How Amazon “Legally” Pays $0 In Taxes

How Amazon "Legally" Pays $0 In Taxes
How Amazon "Legally" Pays $0 In Taxes

Amazon is the second biggest employer in America behind only Walmart.

Not only has Amazon elevate Jeff Bezos to the top of the world’s richest people list, it is also one of the most notorious tax avoiders in American history.

In this article, we’re gonna see how Amazon very legally paid zero dollars in federal taxes during 2018, and we’re gonna learn just how dubious its methods really are.

Amazon has had a tough start to do 2019 between New York giving Jeff bezos the boot, Amazon stock being down 20% since last year’s highs.

It’s safe to say that Amazon has been playing on the back foot so far and yet 2018 was a record year.

Amazon more than doubled its profit to 11 billion dollars and more importantly got to pay zero dollars in income taxes on it.

So how does Amazon do it

Unsurprisingly the answer is accounting and it’s actually not as complicated or as boring as you might imagine.

Amazon like everyone else reduces its tax bill by using deductions, but unlike you & me Amazon has access to much more lucrative deductions.

That can be grouped in three different categories some more reasonable than others, the first and cleanest sort of deduction Amazon makes use of is the research and development tax credit.

Which works in a rather simple manner roughly 7% of what Amazon spends on wages and supplies for its R&D Department they get to claim as a deduction.

which makes sense Congress would love to see America remain a technological superpower and what better way to encourage innovation then by handing out tax deductions.

In 2018 Amazon saved almost 1.5 billion dollars thanks to the R&D credits but that’s just the start of it.

As you know in 2017 president trump did his big revision to the US tax code and one of the things he slipped in there is a temporary boost to one form of deductions specifically depreciation.

Whereas in the past companies have to depreciate or write off their property and equipment over many years usually decades trump’s tax revision allows companies to skip this process entirely getting the full tax benefit from the very start.

In other words when Amazon Builds a new data center for example it gets to claim the full cost of it as a tax deduction,Now instead of spreading it out over the course of 40 years.

Now this particular provision in the tax code is gonna last until 2022 but you can already see the impact it has now Amazon’s depreciation has increased by 40% in 2018.

Unfortunately it’s not possible to know exactly how much of that new depreciation is motivated by the favorable tax revision but it’s probably safe to assume that it had at least some effect.

Now the final & the sleaziest sort of deduction Amazon takes is thanks to it’s use of stock based compensation and it’s a very sneaky one.

You know how all the big corporations pay their senior employees not in cold hard cash but in stocks.

Well they do that not out of the kindness of their hearts because they’re so concerned about employee ownership, but rather for a much simpler reason it saves them a lot of money.

You see when Amazon pays it’s employees in stock it gets to deduct the value of the stock it gave just as you would deduct a regular wage.

But there’s a huge issue here because Amazon did not actually pay anything for the shares it gave out it didn’t go and buy them off of the markets no it just created them out of thin air because it can in the same way that the feds can print new dollars.

The ones who actually pay for this charade are the Amazon stockholders whose existing shares are worth less because Amazon is constantly creating more of them to pay its employees.

This strategy works as long as a stock price keeps going up and the only stock that’s gone up more than Amazon in the past decade is surprisingly domino’s pizza.

But in any case this brilliant strategy not only makes Amazon’s wages effectively free for the company it also gives it a huge tax deduction.

In 2018 Amazon saved 8 billion dollars by paying its employees in shares it created for free.

How Amazon "Legally" Pays $0 In Taxes
How Amazon “Legally” Pays $0 In Taxes

Now you’re probably wondering why doesn’t everybody do this, After all the laws that govern Amazon apply to every other company in exactly the same way.

The answer is Jeff bezos, no the real answer is that most companies struggle to keep their stock price going up without constantly buying back their own shares.

Stock buybacks are extremely popular, Amazon is actually one of the few companies that doesn’t do them.

Most companies first go to the stock markets to buy their own shares, which increases their price and then they hand them out to their employees.

But it mostly balances out but Jeff bezos just skips the buying part because he’s confident that the stock is gonna increase on itself and indeed it does.

In a way you can argue That Bezos is the ultimate wolf of Wall Street because he’s honestly making billions off This.

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Written by Wolfgang Mayer

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