We’ve all heard it before… Amazon paid $0 in taxes while making over 11 billion dollars in profit.
And while most businesses were paying their fair share of taxes, in 2018, Amazon received a rebate of $129 million.
This basically means Amazon got a federal tax refund for millions of dollars.
Must be nice, right? Well, Amazon isn’t alone.
Over 91 Fortune 500 companies, including Nike, Netflix, and FedEx, don’t pay much in federal income tax, if at all.
But how do they do it? It’s not as complicated as you might think.
In this post, we’ll be uncovering how Amazon was able to completely write off taxes.
But more importantly, how you can learn from Amazon and do the exact same thing.
Let’s start by understanding the number one thing Amazon does to write off taxes.
How to Write Off Taxes Like Amazon
1. Amazon uses credits.
See, credits provide a dollar-for-dollar reduction of your income tax and are given by the government to reward certain types of behavior that benefit the US economy.
And the credit that Amazon uses is not just available to Amazon but is also available to you too.
The credit is called the U.S. federal research and development credit.
Amazon took advantage of this credit by pouring billions of dollars into the research and development of things such as new products like the Echo and services like Alexa.
In fact, Amazon typically outspends every US company in this category.
And as a result, Amazon not only shows less profit but the government also gives them credits that reduce their tax liability.
So, the first lesson we can learn from Amazon on how to write off taxes is to take advantage of all available tax credits – both at the state and federal level.
To help you get started, here are a few of the top tax credits available for small business owners at this time:
- Opportunity Zone Credit
- Employer Retention Credit
- Disabled Persons Credit
- Small Business Healthcare Tax Credit
- Business Energy Tax Investment Credit
Trust us when we say that it is just the tip of the iceberg for available credits you may be eligible for. Here’s a full list of business tax credits from the IRS website.
2. Amazon makes business decisions that will provide them with the biggest tax benefit.
Let us explain.
Take a look at the genius way Amazon chooses to compensate its employees.
In addition to normal salaries, Amazon also pays its employees via vested stock and stock options.
By doing this, Amazon takes advantage of large deductions because they can write off the vested shares and stock options without spending a dime to give them out.
That’s right, Amazon can write off the stock they give to their employees without spending a dime on them.
While most Fortune 500 corporations choose to buy back shares of their company from the market and then give them out to employees, Amazon skips the buying part altogether and simply prints more shares to hand out.
Just so you know, C-corporations and S-corporations can issue stock while LLCs cannot.
But once again we see that Amazon prioritizes decisions that will give the greatest tax advantage.
Here’s another example and the backstory.
Back in 2017, Amazon started a massive bidding war among 238 locations when it announced plans to build a second headquarters.
“We want to encourage you to think big and be creative,” the company said in their request for proposals.
Because Amazon will provide thousands of jobs and a great deal of attention to any city it chooses, states and cities are willing to offer up huge tax savings for them to locate there.
Amazon ultimately decided to choose Virginia due to Virginia having what some call the best tech workforce in the nation.
But, you can bet the $750 million dollar tax incentive Virginia will provide also played a role in that decision.
So maybe you are saying to yourself right now, “But I am not Amazon, cities won’t be lining up to offer me credits to start jobs there.”
In reality, they actually are!
For instance, in Georgia alone, where LYFE Accounting is headquartered, the State provides an enormous amount of credits to help and encourage entrepreneurs to start a business and create jobs.
In fact, Georgia even publishes an annual 20-page brochure with all of the reasons to start a business here.
A big one we use is the Opportunity Zone Credit which provides a $3,500 per job per year credit that goes toward state income and withholding taxes.
This credit played a major role in us deciding where to get our office as the credit isn’t available everywhere.
So the second lesson we can learn from Amazon on how to write off taxes is to make business decisions that result in lower taxes.
3. Amazon’s increasing investment in property and equipment.
You read that right, and this makes them eligible for HUGE tax deductions through depreciation.
Thanks to the former president and the Tax Cuts and Jobs Act that Congress passed in 2017, Amazon is able to accelerate the depreciation of qualified property, primarily equipment, through 2022.
And it’s clear that Amazon is making good use of it.
Based on Amazon’s recent earnings report, we can see that they have been aggressively increasing their purchase of property, plant, and equipment since 2016.
And we don’t blame them.
The good news is that you can do the same!
While you may not be able to purchase a building, check with your accountant as there are ways for you to make use of accelerated depreciation deduction if you have a home office to accelerate the depreciation of things such as:
- software programs, and
- office furniture
So the third lesson we can learn from Amazon on how to write off taxes is to understand loopholes in changing tax laws.
By the way, if you want to learn more about home office deduction, then be sure to read this post next.
4. Amazon uses carryforwards to lower its tax liability.
Carryforwards allow businesses to carry over deductions to future tax years and Amazon uses three types of carryforward.
a. Net Operating Loss Carryforwards
This allows Amazon to carryforward losses from prior years where they had more expenses than revenue which resulted in a loss.
In 2018, Amazon had $627 million of operating loss carryforward.
b. Capital Loss Carryforwards
This allows Amazon to offset its capital gains. In 2018 Amazon had $261 million dollars in capital loss carryforwards.
c. Tax Credit Carryforwards
This one allows Amazon to offset taxes dollar for dollar. In 2018, Amazon had $1.7 billion in tax credit carryforwards.
Basically, Amazon uses credits and deductions that they did not use previously and applies them to future taxes.
And the truth is that you can too!
Carryforwards can be claimed by an individual or business to reduce future tax liability.
So the fourth lesson we can learn from Amazon on how to write off taxes is to check previously claimed credits and deductions that you may be able to carry forward.
Amazon $0 Tax Myths
Now let’s talk about a few myths to see if they are true or false.
Myth #1: Amazon pays $0 in taxes
This claim is half-truth and half-false.
Amazon paid $0 in Federal taxes in 2017 and 2018 but Amazon does pay plenty of payroll taxes, state taxes, and international taxes.
In 2019, Amazon broke its streak of paying $0 Federal taxes and actually owed money to the federal government.
But don’t feel too bad for them as the rate came out to an approximate tax rate of 1.2% – far below the 21% corporate tax rate.
Myth #2: Small businesses can’t write off taxes like Amazon does.
This claim is false.
Amazon has been able to reduce its effective tax rate each year by using a variety of credits, rebates, and loopholes that are available to all businesses.
That’s why we love writing posts like this to share the secrets of the biggest businesses out there with the rest of the world.
You just have to do your research or hire the right accountant that can help you save on your taxes.
How to Write Off Taxes Takeaways
Well, there you have it! How to write off taxes and pay $0.00 like Amazon!
Or, you can also talk to one of our tax consultants here. Get in touch with us now to get started saving on your taxes.