It seems like the headlines are everywhere:
“Amazon will pay $0 dollars for the second year in a row.” – The Week
“Apple Successfully Avoids $50 Billion in American Taxes.” – Gizmodo
The question you may be wondering: How?
How, exactly, do the world’s largest companies—companies that are worth hundreds of billions or even a trillion dollars—get around paying taxes? How do businesses making hundreds of millions of dollars a year manage to pay so much less than the corporate tax rate?
If there’s one thing companies are historically very good at, it’s attempting to buoy their profits—and that can mean finding creative solutions to avoiding taxes.
Is it fair? We won’t weigh in on that. After all, the corporate tax rate is one of the hottest taxation debates out there. Is it legal, though? Typically speaking, yes.
Today, we’re going to break down a few of the most popular ways that major U.S. companies avoid paying taxes.
There are countless avenues companies use to lighten their tax burden, but we might not be able to cover all of them unless we wrote an entire book about it. Needless to say, we don’t have that kind of time on our hands.
Here are four of the classics. A greatest hits compilation, if you will.
If you’ve ever registered an LLC, you may be familiar with the fact that the state in which you set up your business can significantly impact everything from income tax to sales tax and more.
This isn’t just true on a state level, but on an international level, as well. Where your business is headquartered, where you have branches, where you do your research, and even where your patents are located can impact your tax burden.
Companies who do a lot of research and development often end up with a lot of new intellectual property, manufacturing patents, and other developments that earn them a lot of money in the long run. Strategically housing these patents in low-tax companies means the revenue is taxed at that rate, which is typically lower than in the U.S.
We all know that charitable donations are deductible. That’s one of the reasons why you see so many charitable giving opportunities and fundraisers toward the end of the year. Well, U.S. companies are no strangers to recognizing the benefit that donations can have on their tax bill.
In fact, many companies—similar to some celebrities—will create nonprofit foundations in order to lighten their tax burden. Some companies, like Google, do a ton of nonprofit work in earnest, but the tax benefits of supporting charities are pretty undeniable.
You don’t have to be a billion-dollar company to capitalize on depreciation in your taxes. Really, all you have to do is earn some sort of income from your property.
You’ve probably heard about depreciation most recently in a New York Times article about Jared Kushner, who has quintupled his wealth in the past decade to over $300 million while paying little to no income taxes. That is due to his ability to deduct a portion of what is considered “natural wear and tear” on properties he and his family own.
This completely above-board deduction is something many taxpayers simply don’t have access to because they don’t have income-producing properties. This is most commonly used amongst real estate companies, but if your company rents out space in one of its buildings, it may be able to account for depreciation. That can save many companies big come tax time.
One of the biggest tools that companies employ is funneling their profits through different countries in order to lighten their tax burden. This is common among companies and some celebrities. Here’s one example from a few years back:
Google licensed some its intellectual property to a subsidiary in Ireland. However, Google then funneled those profits through the Netherlands and ultimately to Bermuda, where the corporate tax rate is zero.
Comedian John Oliver actually covers this in an episode of Last Week Tonight with John Oliver. If you’ve got an extra sixteen minutes today, it’s worth a watch:
Note: There is some NSFW language in this, so be mindful of whether or where you watch.
It’s not surprising that U.S. companies jump through so many hoops to lighten their tax obligations, but it is true that they have access to many more tools to do so than the average taxpayer.
Hopefully, now you have a better understanding of how corporate entities end up paying astonishingly low totals to Uncle Sam. The next time you hear one of these stories on the news, you’ll have a better idea of how they do it. As for deciding whether or not you think they should do it, that decision is entirely up to you!