How Amazon (Legally) Pays $0 In Taxes


Amazon: the second biggest employer in America,
behind only Walmart. Not only has Amazon elevated Jeff Bezos to
the top of the world’s richest people list, it is also one of the most notorious tax avoiders
in American history. In this video we’re gonna see how Amazon
very legally paid $0 in federal taxes during 2018 and we’re gonna learn just how dubious
its methods really are. This video is brought to you by Skillshare,
who, as you know, are pretty awesome so go check them out. Amazon has had a tough start to 2019. Between New York giving Jeff Bezos the boot
and Amazon stock being down 20% since last year’s highs, it’s safe to say that Amazon
has been playing on the back foot so far. And yet, 2018 was a record year: Amazon more
than doubled its profit to $11 billion and more importantly got to pay $0 in income taxes
on it. So how does Amazon do it? Unsurprisingly, the answer is accounting,
and it’s actually not as complicated or as boring as you might imagine. Amazon, like everyone else, reduces its tax
bill by using deductions, but unlike you or me, Amazon has access to much more lucrative
deductions that can be grouped in three different categories, some more reasonable than others. The first and cleanest sort of deduction Amazon
makes use of is the research and development tax credit, which works in a rather simple
manner. Roughly 7% of what Amazon spends on wages
and supplies for its R&D department, they get to claim as a deduction, which makes sense:
Congress would love to see America remain a technological superpower and what better
way to encourage innovation than by handing out tax deductions. In 2018 Amazon saved almost one and a half
billion dollars thanks to the R&D credits, but that’s just the start of it. As you know, in 2017 President Trump did his
big revision to the US tax code and one of the things he slipped in there is a temporary
boost to one form of deductions, specifically depreciation. Whereas in the past companies had to depreciate
(or write off) their property and equipment over many years, usually decades, Trump’s
tax revision allows companies to skip this process entirely, getting the full tax benefit
from the very start. In other words, when Amazon builds a new data
center, for example, it gets to claim the full cost of it as a tax deduction now instead
of spreading it out over the course of 40 years. Now, this particular provision in the tax
code is gonna last until 2022, but you can already see the impact it has now: Amazon’s
depreciation has increased by 40% in 2018. Unfortunately it’s not possible to know
exactly how much of that new depreciation is motivated by the favorable tax revision,
but it’s probably safe to assume that it had at least some effect. Now, the final and sleaziest sort of deduction
Amazon takes is thanks to its use of stock-based compensation and it’s a very sneaky one. You know how all the big corporations pay
their senior employees not in cold, hard cash, but in stocks? Well, they do that not out of the kindness
of their hearts or because they’re so concerned about employee ownership, but rather for a
much simpler reason: it saves them a lot of money. You see, when Amazon pays its employees in
stock, it gets to deduct the value of the stock it gave just as you would deduct a regular
wage. But there’s a huge issue here, because Amazon
did not actually pay anything for the shares it gave out. It didn’t go and buy them off of the market:
no, it just created them out of thin air because it can, in the same way that the Fed can print
new dollars. The ones who actually pay for this charade
are the Amazon stockholders, whose existing shares are worth less because Amazon is constantly
creating more of them to pay its employees. This strategy works, as long as the stock
price keeps going up: and the only stock that’s gone up more than Amazon in the past decade
is, surprisingly, Domino’s Pizza. But in any case, this brilliant strategy not
only makes Amazon’s wages effectively free for the company, it also gives it a huge tax
deduction: in 2018, Amazon saved a billion dollars by paying its employees in shares
it created for free. Now, you’re probably wondering why doesn’t
everybody do this? After all, the laws that govern Amazon apply
to every other company in exactly the same way and the answer is Jeff Bezos; no, the
real answer is that most companies struggle to keep their stock price going up without
constantly buying back their own shares. Stock buybacks are extremely popular and Amazon
is actually one of the few companies that doesn’t do them. Most companies first go to the stock market
to buy their own shares, which increases their price, and then they hand them out to their
employees, and it mostly balances out. But Jeff Bezos just skips the buying part
because he’s confident that the stock is gonna increase on its own, and indeed it does. In a way, you can argue that Bezos is the
ultimate Wolf of Wall Street because he’s honestly he’s making billions off of this. And if you’re interested in making billions
off of the stock market in morally-questionable, but 100% legal schemes, well then I’d like
to interest you in the two investment courses I made on Skillshare. They’re gonna teach you all about the stock
market, including the stock buybacks Jeff Bezos so consistently avoids. You can watch my classes for free right now
if you’re one of the first 500 people to register with the link in the description,
which will give you access to Skillshare’s incredibly rich selection of courses on pretty
much any topic you can imagine. Once you’ve signed up there you should also
follow me on Instagram to watch the awesome teasers I post for every upcoming video. We’re gonna hear each again in two weeks,
and until then: stay smart.

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100 thoughts on “How Amazon (Legally) Pays $0 In Taxes

  1. Good god this is sloppy. You can argue whether or not that is "fair" or not, but it's the company's fiduciary responsibility to the shareholders to generate the highest EPS for those shareholders, not to maximize taxes paid to the government. Nothing they did was even slightly nefarious or out of the norm for a company.
    1. Amazon didn't pay $0 in taxes, it paid $1.2B in taxes.
    2. The effect of depreciation from the tax code will not impact GAAP financial statements (which is what you used). The 40% increase in depreciation on the financial statements that you reference has NOTHING to do with tax code changes and everything to do with the fact that PP&E increased from $72.6B to $95.8B. Bonus depreciation, for tax purposes means that they won't be able to use it in following years and was created with the idea that capital investment leads to job creation. You can argue the politics of that, but that is why it was allowed.
    3. SBC can be dilutive to shareholders in a vacuum; however, it's a far better deal for shareholders than if that compensation were paid in cash. Simply because there wasn't a cash outflow to fund the SBC doesn't mean it wasn't an expense. By that logic, any non-cash expense should not be permitted to be deducted. Ask the shareholders if they would rather have the $5.4B in stock based compensation paid immediately in cash or paid out in shares that vest over periods of time, requiring employees to continue working at the business.

  2. Laws need to be changed so these large corporations can't avoid paying or paying little to nothing for taxes.

  3. pays 0 taxes but creates 1000s of jobs and growing…. poor people complain bout tax breaks… whos really greedy the rich or the poor?

  4. Politicians tell us there isn't enough money but in reality the extra money needed for public services is lost in tax avoidance

  5. You politically left out that when they depreciate the value of an item in 1 year, then that's it. It's not like they can depreciate the entire value again. I would recommend people avoid his courses. He has a lot of mis- information.

  6. Everything said in this video is very misleading and has a bias. For one, the depreciation deduction is what people call “Bonus Depreciation” and has been around since the 2000s. Trump did not create this deduction.

    The bonus depreciation was first introduced to the us tax code in the 2000s as a temporary deduction. However, every year the bonus deduction code is about to expire, Congress extended bonus depreciation code another year. Trump simply extended bonus depreciations deduction.

  7. I dont think bezoz knows much about the stock. Im sure he has multiple financial advisors and of course accountants that tell him what to do.

  8. If I owned a company as big as Amazon, I would do the same thing, and you would too. There is a simple fix. Decrease the tax code to a single page with a low rate flat tax. Done!

  9. We in the West are massively overtaxed; this reduces the ability of ordinary people to live fuller lives and it funds government projects that do little more than get bad politicians elected. We need some taxes for sure, but not a lot of taxes. If Amazon pays no taxes it benefits us all and the success and health of Amazon and other innovative social vehicles benefits us all.

  10. So employing half a million people means nothing right. Who cares if they don’t pay taxes. They’ve done nothing but help society

  11. Advertise skillshare by promoting own course about stock markets and calling it 'morally questionable but perfectly legal'. Business Casual it is! 😂😂

  12. do we actually want amazon to pay more tax? If they do prices will rise and we will have to pay more for their products!!

  13. They do NOT create stock out of thin air. They deduct the amount the company owns.

    When a company IPO’s, they only release a small portion of the companies shares to the public. The rest is kept by the company.

  14. Jeff Bezos is a genius. Everything he is doing is legal. If you were in his position you would do the same thing he is doing so I don’t want to hear it.

  15. I think instead of criticising entrepreneurs like jeff bezos of paying no taxes, like in a video by vice news, we should all try to learn how people like jeff do this legally, so we could all save some more tax money, and grow more financially educated

  16. Residential and business buildings are still depreciated over 27.5 and 39 years respectively. There are few other asset types that have a depreciable life that is more than a decade. Learn your topic before you do a video.

  17. People: *tax planning…* "Man, why do i have to pay so much taxes?! Why won't the rich do it?
    Jeff: *Finishes eating marble beef, drinks his 30k for a bottle vine, burps, wipes his mouth with a side of a 10k cash pack, throws it on the table, because it's dirty. Stands up, while waiters begin to fight for it* Because you are fookin pleb, that's why.

  18. USA and their legal frauds. In Europe, they would pay 35% of tax 😀 A new bubble for the future crisis is growing again.

  19. Amazon doesn't need to pay taxes.
    Their workers can pay them through !
    I don't, have never, or ever will, by anything from Amazon.

  20. How to fix this tax scam? Tax all forms of income at the same progressive rate (no special lower rates for hedge fund managers, trust fund babies, etc.). Add up all income (wages, capital gains, interest, etc.) and subtract the standard deduction (the first $30,000 earned for individuals or $50,000 for married couples is tax-free), but get rid of ALL other deductions except have only a few deductions for dependent children, medical hardships, and the interest paid on student loans (not interest on mortgages as it makes renters subsidizing home owners and the deduction on charitable donations encourages the funding of scam charities). Increase the top marginal tax rate to 70% on income over $600,000 per year, tax hoarded wealth over $50 million at 2% per year. Have estate tax paid on inherited assets greater than $5 million per individual, using a progressive tax scale. Have corporate income taxes at 18% but also get rid of ALL deductions, loopholes and exemptions. Impose a 20% payroll tax, paid by employers, on all non-citizen employees and H-1B visa workers to discourage out-sourcing employment. Hire many tax specialists, made unemployed by this simplified tax plan, as IRS auditors and pass a law focusing at least half of the IRS's enforcement on the richest 1% of people and corporations in the USA.

  21. All these words, "schemes, morally questionable," and so on, are just your attempt to make a great man like Jeff Bazos seem like a bad man.

  22. Person 1: hey lets pay no taxes this year….
    Person 2: you mean legaly?
    Person 1: yes legaly…
    Person 2: dude we made 11+billion this year alone…
    Person 1: i know but i have a strategy how to do it…
    Person 2: oky lets show us (looking at accountant graphs)…
    Person 2: dude u just got a raise!!

  23. When Amazon build a new Data Center isn't that considered cost of operation? Why would it need to be a tax credit?

  24. So I have to work hard to pay my tuition and half of that is taken by the government, but someone with billions can just pass through it… trump only supports the rich and he specifically made the laws/ executive order so he can make even more money after his presidency is over.

  25. Aren't YOU the dummies raised hell for stock options to be treated as expenses. NOW you see how stupid that was and want to take it back?! LOL!!!!!!!!!

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