How Amazon Paid $0 in Federal Taxes in 2018
Paying taxes is one of the harsh realities of life.
I am sure that none of us really wants to pay any tax.
Yet every year, Uncle Sam takes at least one-third of what we earn, if not more.
The first time that you realize this is when you receive your first ever paycheck.
That’s when it hits you, not everything you earn; you get to keep.
I’m going to do a quick survey, and here’s how you can participate.
If you hate paying Taxes; give this video a thumbs up, however, if you like Taxes, give
this video a dislike.
And comment below why you do; I would love to know why.
So, surprisingly, even the school curriculums, as important as it is; teach very little about
personal finance and taxes (which really needs to change).
It’s only when a person enters the workforce that he or she, gets acquainted with income
taxes for the first time.
This is one of the reasons why parents are encouraged to teach their kids about taxes
from a very young age.
A friend of mine, who has recently become a dad, jokes about this and says that; he
plans to teach his kid about taxes from a young age by eating 30% of his ice-cream.
If you start learning about taxes from a young age, you will learn to be smarter about them.
You will learn how not to overpay your taxes and most importantly, you will learn the loopholes
that the rich use to legally avoid taxes.
When Donald Trump was asked by the press during his presidential running as to why he does
not pay any taxes, he replied, “I don’t pay taxes because I am smart”.
Many people took a lot of offence to this, as it implies that you are dumb if you pay
taxes.
Well, to be honest, it has nothing to do with your IQ.
If you pay lower taxes than others, it just means that you are more financially literate
and have better money management skills.
In this episode, I will go through the history of taxation to give you some context and then
discuss some legal loopholes in the system that you can use to lower your tax bill.
In addition to this, I will also suggest some great ways in which you can increase your
financial literacy and improve your money management skills.
So, stick to the end of this video.
If you haven’t already subscribed, please do so and press the notifications button,
so that we can bring you more videos like this.
Today, we’ve accept taxes as a normal part of doing business.
But the same was not the case about 800 years ago.
In the year 1215, when King John of England started extorting people to pay taxes as high
as 50%, the nobles and powerful barons united and waged a civil war and took control of
London.
With no other option left, King John had to appease them by signing the Magna Carter and
gave them back their property rights amongst other benefits.
This was the first time in history where the rich and powerful fought with the establishment
to get the tax laws bent to appease themselves.
In America, the rich businessmen spend millions of dollars in campaign money to support their
desired candidates.
Have you ever wondered why they do this?
Well, it’s done so that the rich people, even though they stay on the sidelines, can
have significant influence over tax laws and other policies.
In the end, it doesn’t even matter which party wins, as both parties had the financial
backing of some rich and powerful individual.
This is how the system of taxation works.
It’s also why Robert Kiyosaki says that the system is rigged against the working middle
class.
In his “Rich Dad, Poor Dad” series, he goes on to explain this using his four cashflow
quadrant concept.
The “E” quadrant stands for an employee, which includes everyone with a job – be
it a blue-collar or a white-collar worker.
The “S” quadrant includes the small business owners or self-employed professionals such
as doctors, lawyers, and so on.
The “B” quadrant includes the big businesses that have 500 or more employees.
And the “I” quadrant is for the investors like Warren Buffet, Ray Dalio and the likes.
Robert Kiyosaki goes on to explain that the rich and powerful can be found in the B and
I quadrants.
This is where most of them are operating, and making their money from.
Hence, when they negotiate with governments for tax concessions and incentives, they only
negotiate for these two quadrants.
There is a reason why the Current Tax Payment Act of 1943 was passed so easily in America.
This law formalized the withholding income tax system whereby employers were asked to
withhold income taxes from a worker’s paycheck at the end of each month.
And this law applies only to the Employee and Self-employed segments, of Robert Kiyosaki’s
4 quadrant concept.
The rich and powerful, on the other hand, have been able to extract huge tax breaks,
reliefs, and incentives from the government for their 2 quadrants.
Now, you may argue that, this is a very selfish thing to do.
However, at the end of the day, it’s a capitalist economy and so the golden rule of “every
man for himself” applies.
This is why Robert Kiyosaki urges everyone to situate themselves on the right side of
the quadrant table into the B and I quadrants so that you are also able to enjoy the same
privileges that the rich enjoy.
Do you know that Amazon, a trillion-dollar company paid less federal income tax than
a divorced single working mother who lives on a small paycheck?
Yes, you heard me correctly!
Amazon paid $0 in federal income taxes in 2018.
How did they do this, you ask?
This is where financial literacy and education comes in.
Amazon operates in the big business segment of Robert Kiyosaki’s cashflow quadrant table.
Therefore, they were able to get huge tax reliefs from the government.
The three main tax breaks that Amazon received were:
1.
Deductions and tax incentives related to investment in Property, Plant, and Equipment.
When Trump government came in 2017, it passed the Tax Cuts and Job Act (TCJA) which slashed
the corporate tax rate from 35% to 21%.
It also gave huge tax reliefs for big business owners to make heavy capital expenditure into
property, plant, and equipment.
Amazon really took advantage of these deductibles and expanded their warehouse and supply chain
network during this time.
2.
Amazon also gets huge tax credits and deductibles by just heavily investing in research and
development.
3.
Perhaps one of the biggest tax credits for Amazon comes from its Employee Stock Compensation
plan.
A few years ago, amazon moved away from cash compensation to a stock compensation regime
for its employees.
As the stock price increases, the tax deductions coming from owning these ESOP plans also increase.
There are other smaller incentive and tax claims that I am sure Amazon takes advantage
of as well, but I have told you about the 3 major ones to educate you as to how powerful
and big businesses take advantage of tax avoidance.
Amazon is not the only company that takes advantages of these tax laws.
Other companies like the likes of General Motors, Netflix and even Chevron paid $0 in
federal taxes in 2018.
Doesn’t that just make you feel sorry for yourself?
What if I tell you that there are some tax benefits that you can avail as well, by investing
in retirement funds like a 401k or other pension plans.
There are two types of retirement plans.
You can either have a defined contribution plan or a defined benefit plan.
Let us explore defined contribution plans first.
A Defined Contribution plan is one in which you contribute a certain portion of your income
every month to a fund, which is also matched by your employer.
You bear the risk of investment and there are no guaranteed payouts.
You will be offered different investment plans and will be advised to select one that suits
your risk profile the most.
The advantage of contributing to a retirement plan is that every dollar that you contribute
is a dollar not taxed.
On retirement, you get the option of either taking out the lump sum amount or opting for
an annuity payment.
In either case, you are taxed, but at a significantly lower tax rate than you would have normally
paid on it.
If you go for the option of investing in a Roth I.R.A, you can contribute a maximum amount
of $6,000 each year or $7,000 if you are aged 50 or more.
In a 401k plan, you can contribute about $19,500 each year or $26,500 if you are 50 or above.
This is a good tax haven for anyone with a job earning less than 100k a year.
But what if you are a small business owner and earn more than that?
You would want to make higher tax-free contributions to your pension plan, but the 401K or IRA
just doesn’t allow that.
Here, you have the option of setting up a defined benefit plan.
Depending on your age and some other actuarial factors, you will be able to contribute around
$200,000 to your plan each year.
The higher your age, the higher your contribution limit.
Not many people in the world know about this little-known secret.
Although setting up a defined pension plan can be a cumbersome process and even a slightly
expensive one as well since you have to hire a team of actuaries to manage it, but the
reward is truly worth it.
You can shelter hundreds of thousands of dollars from taxes using this fund.
In conclusion, the biggest takeaway for you from this video should be that taxes are there
for everyone.
However, you need to be smart about them and know what loopholes are available for you
to exploit.
You should also have knowledge about what items are tax deductible, so that you don’t
end up paying more than what you actually owe to Uncle Sam.
Yes, in case of overpayment, you might receive a tax refund check in your mail after some
time, but that is not “free money”.
Many people do treat it that way.
You should remember that this is the money that you shouldn’t have paid to the government
in the first place, if you knew about all your deductibles.
Instead, consider it as an interest free loan that you gave to the government which you
could have other wise put to a much better use and invested elsewhere.
Another important thing to note is the difference between tax avoidance and tax evasion.
All the techniques that I have told you about up till now comes under tax avoidance.
It’s hundred percent legal to avoid tax as you are only using the tax laws to reduce
your tax burden.
Tax evasion, on the other hand is illegal evasion of taxes by individuals, corporations
or even trusts.
So, it’s important to know the difference in order to avoid getting into trouble with
the tax authorities.
Hope this video was useful in giving you some insights on how taxes work and how you can
be better with your finances.
Thank you so much for watching, like this video if you found value in it.
And subscribe to the channel if you haven’t.
With that said, thanks again, and I’ll see you guys in the next one.