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In July of 2017, Jeff Bezos made history and surpassed bill gates as the richest man in
the world with a net worth of 153 billion dollars.
To understand his scale of wealth, let's look at some numbers.
Earlier this year, Jeff announced that he is separating from his wife Mackenzie but
because they live in Seattle, his wife has the right to a large portion
of his wealth, to be more precise - 35 billion dollars, that will make her 3rd ri chest woman
in the world.
But Jeff isn’t worried because he will still be on the top of the list with over 110 billion
dollars.
That's how rich Bezos is, he can afford a divorce and still be on the top of the Forbes
list.
Behind his enormous wealth, stands a conglomerate and if you know anything about Amazon, you
know that it is on the way to take over the world.
But did you know that this company that’s valued almost at a trillion dollars, paid
0 dollars in federal taxes?
To understand how this guy with such a loud laugh is making billions of dollars while
not paying taxes at all, we have to take a look at history!
We know Amazon as the place to go for online shopping.
But for Netflix, uber, and thousands of others, Amazon is their way to the internet.
They rely on amazon web services for their websites to function.
What started as a side project to support amazon.com quickly grew into a multi-billion
dollar company by itself, earning more money than Amazon ever had.
In fact, if you take a look at the numbers, more than 41 percent of the internet relies
on AWS.
Only big corporations such as Google, Microsoft, and Facebook aren’t on the mercy of Amazon
since they are big enough to build their own infrastructure.
But that’s not the only industry that Amazon has its grip on.
Even for us, the consumers, Amazon is no longer the middleman who connects buyers with sellers.
It's becoming the seller itself.
Amazon now sells more than 450 if its own brands from watches to clothes.
Cables to furniture.
Competing with the rest of sellers on the platform to be on the top of the list and
since its Amazon, they definitely know how to keep their products on the main page.
And its only a matter of time before everything that’s sold on Amazon will be produced by
Amazon itself.
for an Amazon box to reach your door, it needs to go through many hands.
from a tuck to a plane to a van and maybe then to your doorstep. and Amazon has heavily
been relying on UPS, FedEx and US postal service.
but that’s about to change.
To be more precise, it's already changing.
Amazon now has more 50 planes and hundreds of vans and semi-trucks to ship its own products.
It already handles a quarter of its shipping.
and it doesn’t seem to stop there.
Remember Amazon web service, it started to provide servers to Amazon websites but quickly
began providing servers for everyone else. and it seems like Amazon wants to do the exact
same thing with Amazon fulfillment and become a logistics company.
Although Amazon is a small fish compared to UPS and FedEx in the logistics industry.
Amazon is on its way to change that.
Once Amazon is completely self-sufficient, it can easily drive shipping cost down.
It doesn't have to make a profit since it has multiple other businesses that already
generate billions of dollars in revenue and once UPS and FedEx are out of business, then
Amazon can slightly increase the prices and enjoy unbelievable profits since it will the
only player in the market.
Amazon doesn’t just want to be the place where you periodically buy strange gadgets.
It wants you to buy groceries at Amazon, that’s why it purchased whole foods market.
Many of us still prefer to physically go to the store but we all know that it is about
to change.
and Amazon doesn’t want to miss the opportunity to take over the industry.
The grocery business is definitely competitive but no one is more qualified to do that than
Amazon.
They have the technology, experience, and money!
Even though Netflix relies on Amazon.
Amazon is on its way to change that.
In 2010, Amazon launched Amazon studios to challenge Netflix.
Of course, they are too small to be compared to Netflix, but that’s what the bookstore
managers said when Amazon started selling books online.
They will keep pouring money and creating as many shows as they need to convince you
to switch to Amazon studies.
And unlike Amazon.
UPS, FedEx, and Netflix do not have a side business that earns them a pile of cash!
You see, Amazon is playing the long game, Instead of making a profit, amazon simply
reinvests its revenue back into the company to grow bigger and faster.
In fact, sometimes the company didn’t even make a profit because they poured every dime
they made back into the company to take over other industries and reported a loss although
they could have made billions of dollars in profit.
And when you make a loss as a company, you can carry them forward and write them off
from future tax bills, which is what Amazon has been doing.
But that’s not all.
Every nation wants its companies to be technologically competitive.
So to encourage companies to spend more and more on research and development, governments
offer tax credits and amazon is simply taking full advantage of that.
Its spending billions of dollars to automate its warehouses for example.
build better gadgets and voice assistant like Alexa.
It's improving its web services to stay competitive and pouring billions on amazon go for example.
On top of that, the recent changes by Donald Trump on the tax code made it even better
for Amazon.
Now, they can write off their depreciation right from the beginning instead of splitting
it for over multiple decades.
And then there is stock-based compensation.
It's actually a common practice among the companies.
Instead of paying their employees in cash, amazon pays them in amazon shares that it
creates out of nothing and then simply writes off those shares from its tax bills.
In this way, Amazon isn’t only getting free employees but also lowers its tax bill significantly.
Last year, it reported over a billion dollar in stock-based compensation tax benefits.
It's simple but quite nasty!
Its sounds simple in theory but quite difficult in practice, because to do this you need the
stock price to constantly rise and if you give it a closer look, it's a very well planned
strategy.
Amazon makes billions of dollars in revenue but then uses that cash to take over other
industries and deducts it from its tax bill, that keeps the stock price increasing which
allows amazon to pay its employees in stocks instead of cash and writes that off again
from its tax bill.
So, at the end of the day, the company keeps growing making Jeff Bezos wealthier but their
tax bill stays fairly moderate.
In 2018, the company reported 11.3 billion dollars in profit, instead of paying 35% corporate
tax, it had to pay only 21 percent or 2.37 billion dollars since Donald Trump reduced
the corporate tax to “keep American firms more competitive”.
But amazon’s tax credits and stock-based compositions amounted to 2.5 billion dollars.
So instead of paying income tax, amazon actually got a 129 million dollars tax refund.
In fact, it wasn’t their first year, a year prior to that, in 2017, the company also paid
nothing on its $5.6 billion U.S. profits and claimed a tax fund of $140 million.
It seems like Bezos long term strategy paid off.
Just to be clear, that doesn’t mean that Amazon doesn’t pay taxes at all, it still
pays state, local and international taxes for example.
But their tax bill is significantly smaller compared to their size.
At the end of the day, how many trillion-dollar companies do you know?!
Whether it’s good or bad, that’s up to everyone's interpretation, but Amazon is simply
taking advantage of the system and you can’t really blame them for that.
In fact, they are not the only one, companies were doing that for decades.
Remember, the purpose of any business is to maximize profit and not pay taxes.
On the other side, Amazon has provided jobs to hundreds of thousands of people, not only
in America but around the globe.
It's the second biggest employer in America just behind Walmart.
Thats probably the main reason why amazon has been growing exponentially since its inception.
If you have invested just a thousand dollars in amazon back when it was founded, you would
be have made 1.3 Million dollars by 2018.
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