As you guys know after Walmart, Amazon is the second biggest employer in the United States of America. Amazon, Not only makes Jeff Bezos the second richest person on the earth it also gets a tag to be on the top list for the most tax-saving company in the history of the United States. So today we gonna talk about how Amazon was didn’t give a single penny as a tax in 2018.
In 2019 Amazon didn’t get a good start. Amazon had to face a 20% downfall compared to 2018 In the growth rate, also the stock fall up to 2.9%. On the other side, in 2017 amazon earn $5.6 Billion and in 2018 they earn $11.16 billion USA dollars. But the interesting fact is even after earning so much money, they did not pay a single penny tax to the government. I know it’s unbelievable but it’s true. So the query is how did they do? The answer is quite easy and that is “Accounting”
How does Amazon use “Accounting” to reduce their tax?
All of the companies are using the ”Deduction Scheme” to reduce their tax including Amazon. But in this case, 3 different types of Deduction Scheme are help amazon to reduce their tax.
So let’s Talk about those 3 different types of Deduction Schemes that everyone should know.
1- Research and Development
Amazon spends 7% on wages and the supply department for research and development. For your kind information, the USA government wants to be known in the world for our technology and superpower system. According to the federal government, they will give tax deductions for research and development, and based on innovation, amazon gets the tax deduction. In 2018 amazon saves approx $1.5 Billion for research and development credits and it’s just the beginning.
In 2017 45th U.S President Donald Trump make a big correction in American Tax Policy. But unfortunately, he makes a mistake to understand Depreciation. Depreciation refers to a permanent decrease in the net value of a property for any reason. Before 2017, the company had to keep all the details of its depreciation, but for the new rules of Donald Trump in 2017, the company avoided giving the details of depreciation. As a result, the tax rate of companies is reduced. For example, in 2021 if Amazon will make a new database center then according to the new rule Amazon didn’t have to pay a single penny as a federal tax. On the other side, Amazon will have to pay all of the tax if they will make it in 1881.
3- Stock-Based Compensation
As you all know all the big companies do not give hard cash as salary to their senior employees. Instead, the companies distribute their shares. In this case, You would never think that companies are paying more for their employees and care about their employer’s future. The company saves a lot of tax on the distribution of these shares. For example, When Amazon distributed their share to the employers as a salary. They didn’t have an impact on their company amazon is continuously made shares to give as a salary to employees. But this trick only works until the company’s share grows upside. For this reason, they can save lots of money as a tax. In 2018 they save $1 Billion as a tax deduction to using this trick.
So that’s all about it. By using these 3 tricks, In 2018 Amazon founder Jeff Bezos didn’t have to pay a single penny, and conversely, they get approximately $129 Million from the US government as a tax rebate. At last, If you can maintain a proper accounting then you are the next king of Wall Street.