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Old 02-15-2019, 02:05 AM
 
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Amazon Will Pay Whopping $0 In Federal Taxes On $11.2 Billion Profits | Fortune

I'm clueless how these mega companies work in regard to taxes and these types of headlines that make people really mad. Would love to know how this works from someone who understands these things.
Thanks!
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Old 02-15-2019, 04:49 AM
 
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First of all, it’s a myth. They still pay a variety of federal taxes, they’re just having an anomaly of no federal income tax for the year. Second of all, corporations are double taxed, so their increased earnings will be hit elsewhere...eventually.


In the case of Amazon, they probably have large section 42 R&D tax credits. Those are generally worth 6.5 cents on every dollar spent on qualifying R&D in the country. They spend in the top 5 in the country in R&d on an accounting basis. Their credit is probably absolutely huge. That’s a dollar for dollar tax liability offset on qualifying R&D. They also probably take a large section 199 domestic production deduction. These are two things Americans should want amazon to be doing...and congress rewards company’s accordingly. Although, section 199 was repealed for 2018 and forward.

There’s also the new 100 percent tax depreciation on qualifying fixed assets that started in the later half of 2017. Again...new investment.

Companies balance sheets have various accounting accruals under ASC 740 that are either deferred tax assets or deferred tax liabilities. So let’s say...amazon has a bunch of deferred tax assets that were going to lower their future taxes at some point (like my next point...stock options)...at 35% marginal rate. They, like many companies, would need to take a charge in the current year because those assets are only going to shield income at a 21 percent rate in the future because of tax reform. It’s an unfavorable revaluation of the deferreds. I’m guessing that’s what the large one time tax reform item is. But it could really be a variety of other things too. It’s hard to know from these blowhard media headlines.

Lastly, they saw huge deductions for deferred executive stock compensation. The stock value has soared and so that’s taxable value to those employees. That deferred compensation is deductible by Amazon.

With the new tax reform changes to 162m, executive compensation over 1 million on each executive will be a permanent book to tax different and be non deductible. That’s a perm that will hurt companies. Of course, they’re still going to pay the executives anyways because the needs of the business often rightfully override tax considerations.

Last edited by Thatsright19; 02-15-2019 at 05:17 AM..
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Old 02-15-2019, 01:13 PM
 
3,096 posts, read 2,977,606 times
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Quote:
Originally Posted by Thatsright19 View Post
First of all, itís a myth. They still pay a variety of federal taxes, theyíre just having an anomaly of no federal income tax for the year. Second of all, corporations are double taxed, so their increased earnings will be hit elsewhere...eventually.

Itís hard to know from these blowhard media headlines.
THANK YOU!

I had a feeling there was more to the story even if I don't comprehend every thing you wrote.

Nevertheless, I love a good showering of facts over feelings.
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Old 02-15-2019, 02:20 PM
 
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All businesses really and truly "pay" no taxes.....the consumer of their products, or the stockholders (by reduced dividends), pay it as a cost of doing business, just like raw goods, utilities, employee pay, etc are all costs of the final product or service.


It's really a political trick played on real people (who pay all the taxes) that business does, or doesn't, pay "their fair share". Merely another hidden tax paid by people while the politicians trick people into thinking someone else is doing the paying.


A real visionary politician would say "End ALL taxes on business".....and assuming they survived the media and public outrage, and it passed, we'd see a flock of new business and prosperity come here as businesses tripped over one another to get to a place of such reduced cost of doing business from places that had not seen the light yet.



Ultimately (after a period of increased business profit), the cost of goods and services would lower as competition set in.....to be offset by an increased amount of tax real people would have to pay to support the same income base for govt. That wouldn't necessarily be a bad thing, since once people realized the true cost of taxes, they might become outraged enough to demand smaller, more efficient govt.
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Old 02-15-2019, 06:28 PM
 
Location: OH>IL>CO>CT
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Article here explains how they use "tax loss carry forwards". US tax code allows money-losing companies to reduce their future taxable income. Amazon still has millions in losses from their early years in business.

https://www.cnn.com/2019/02/15/tech/...tax/index.html
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Old 02-16-2019, 04:03 AM
 
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Quote:
Originally Posted by reed303 View Post
Article here explains how they use "tax loss carry forwards". US tax code allows money-losing companies to reduce their future taxable income. Amazon still has millions in losses from their early years in business.

https://www.cnn.com/2019/02/15/tech/...tax/index.html
Yes, NOLs is one reason we see these kind of articles. They go back 2 years and forward 20. For example, that was a large portion of the reason GE infamously had years with no federal income tax liability (their financing arm’s losses during the financial crisis).

Sure Amazon had years and years of NOLs early on. But for example, that article points out that Amazon hasn’t posted tax losses since 2014. It said they paid federal income taxes in 2016. If they had NOLs remaining, I’m not sure why they wouldn’t have used them. I doubt they are using them in 2017 and 2018.
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Old 02-17-2019, 09:21 AM
 
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Looking at Amazon's 10-K it appears that the main driver this year was excess stock-based compensation (which makes sense given the surge in the stock price last year before it pulled back) and tax credits.

For stock-based compensation, for book purposes they expense a calculated value of the option or restricted stock when it's granted. For tax purposes, they expense the actual amount that is realized by the employee when they exercise the option or the stock vests (I'm assuming they don't do much with ISOs as its not very common with public companies any more). When the stock price goes up considerably like Amazon's did, the excess tax deductions can very easily wipe out a lot of taxable income.

Not sure exactly which tax credits they're utilizing, probably a lot of R&D credits, but that's just taking advantage of the incentive Congress is giving to make certain investments.
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Old 02-17-2019, 09:36 AM
 
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Amazon also reduced its domestic revenues and profits by setting up an IP royalty scheme in a subsidiary domiciled in a tax haven, such as Ireland.
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Old 02-17-2019, 09:52 AM
 
1,023 posts, read 443,978 times
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Quote:
Originally Posted by lchoro View Post
Amazon also reduced its domestic revenues and profits by setting up an IP royalty scheme in a subsidiary domiciled in a tax haven, such as Ireland.
They still reported the vast majority of their pre-tax income as being domestic, doubling from the prior year.

U.S. and international components of income before income taxes are as follows (in millions):

Year Ended December 31, 2018

US $11,157
International $104

Year Ended December 31, 2017

US $5,630
International $(1,824)

Year Ended December 31, 2016

US $4,551
International $(659)
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Old 02-17-2019, 10:15 AM
 
636 posts, read 113,440 times
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Quote:
Originally Posted by Podo944 View Post
Amazon Will Pay Whopping $0 In Federal Taxes On $11.2 Billion Profits | Fortune

I'm clueless how these mega companies work in regard to taxes and these types of headlines that make people really mad. Would love to know how this works from someone who understands these things.
Thanks!
EDITED - prior posters pretty much addressed the question.

I find it disconcerting there is a never-ending stream of articles written by so-called "journalists" who do not understand the subject matter of which they write. Their incentive seems to be simply to get the article published. Typically, those writers look at filings with the SEC, do not understand, and then latch on to a sound bite that the company doesn't pay federal income tax. Those filings with the SEC do not state how much the corporation paid to the IRS in federal income taxes in the year.

Last edited by RationalExpectations; 02-17-2019 at 10:25 AM..
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