In General—There has arose a big upheaval over corporate America’s failure to pay taxes. There are reports that suggest only the middle class actually funds the government through taxes on everything from income to things we buy to things we use and so forth. How can it be that corporations who make billions in profits pay zero in taxes?

Lets look at the facts.

Net Operating Loss Carryforwards—Amazon has large net operating losses that it has been allowed to carry forward under tax laws that have existed for as long as I can remember—albeit with some changes along the way. At the end of December, 2018, Amazon had a net operating loss carryforward of $627 million. These losses represent prior years where Amazon had more expenses than revenue resulting in a loss. This loss can be carried forward by corporations to offset years’ income (revenue exceeds expenses). Loss carryforwards can be used for 20 years, but then expire.

Capital Loss Carryforwards—Gain is classified, by the IRS, as either income or capital. Capital gain is taxed separately; therefore, capital losses offset capital gain and vice versa. Amazon had $261 million dollars of capital loss carryforwards at the end of 2018.

Tax Credit Carryfowards—Tax credits are very favorable, as they offset actual taxes dollar for dollar. Amazon had as of the end of the year 2018, $1.7 billion in tax credit carryforwards.

Stock-based Compensation—Amazon also had stock-based compensation deductions, akin to wages that it used to reduce income. It may have had almost $1.1 billion in stock-based compensation that it deducted in 2018. Still the government receives taxes from Amazon employees on their compensation.

These tax rules had nothing to do with recent tax reform. It is testament to the fact our corporations (Amazon, for instance) are making more money now than in the past—so much so that prior years losses are being used to offset the income generated currently. Also, our high-tech companies invest heavily in research that lowers their their taxes, but provides jobs and a better quality of life for all.

Bowman Law Firm,

Gene M. Bowman, Tax Attorney & Retired CPA