How Some Big Corporations Don’t Pay Taxes?

According to a five year study by a tax activist group, it was found that many U.S. corporations paid very little or no federal income tax, between 2008 to 2012. Citizens of Justice glanced at some profitable Fortune 500 companies and found that 26 companies like Apple, Boeing, Verizon, General Electric, etc. paid no federal income tax in those five years and some even cut jobs. This was because of loopholes in corporate tax which cost an annual $90 billion loss for the U.S. Treasury. One of the main reason cited was recession in 2008. Read some of the ways as to how companies end up paying little or no tax at all.

Declaring heavy loss

Companies by declaring heavy loss will have zero or negative effective tax rates. This depends on the way the numbers are calculated, say salaries and wages, other deductions like payroll, etc. This can drive the taxable income to zero. Many big corporate giants gather credits which can be used to make up for tax bills in future. These savings can be profitable and reduce the effective tax rate. For instance, General Motors released their credits from the reserve and brought it down from $45 to $11 billion. Once the company used up these $11 billion, the tax rate returned to the legal rate.

Offshore payments

Corporations set up foreign units to make raw materials in countries with low tax rates. Then these U.S. companies buy these materials from the foreign subsidiaries at a higher price. This way, the offshore unit makes profit as they do not fall under U.S. taxes. When companies bring money back to the U.S., they pay the difference between what was paid in that country where the money was stacked and the U.S. corporate tax rate. Most of companies also wait for the U.S. tax free weekend or tax reduction program or tax subsidies which will help them bring cash into the U.S. without paying any tax.

Accounting

When there is a sudden downfall in the profit, unemployment and pension costs, it can lower the company’s tax. Most real estate trusts have low tax rates because they share the profit with shareholders who then pay the taxes.

Buying bonds

When companies buy state and municipal bonds, they are exempted from taxes based on the interest they will earn from the bonds.

The above mentioned corporate loopholes are some of the ways that help corporations to evade tax.

Share this post:

Related Posts

Leave a Comment

Kq4Mpi